- Affirm BUY on Genting Plantations (GenP) with a higher fair value of RM10.20/share, which is based on a PE of 18x on FY14F EPS. In the past seven years, GenP’s PE band ranged from a low of 5.2x to a high of 27.5x. Average PE was 17.4x.

- We have raised our PE assumption for GenP from 16x to 18x to account for the group’s expanding landbank and increasing maturity of oil palm trees in Indonesia.

- We reckon that GenP’s plantation division could be recording small profits in FY13F after breaking-even in 1Q. In FY12, the division recorded a negative EBITDA ofRM20.2mil. FFB production in Indonesia is expected to grow 246% from 81,287 tonnes in FY12 to 200,000 tonnes in FY13F.

- Underpinning the expansion is an increase in mature areas. Mature areas are envisaged to climb 10,000ha in FY13F compared with 3,032ha in FY12. Average age of the group’s oil palm trees in Indonesia is three to four years old.

- In Malaysia, FFB production is envisaged to inch up 2% in FY13F. Although FFB output growth in Malaysia was more than 20% YoY in 1QFY13, production increase for the full year is expected to be slower as tree productivity in 2HFY13 may not be as strong as 2HFY12.

- We forecast property EBITDA to strengthen 72.8% to RM57mil in FY13F. GenP’s property division in Johor is anticipated to enjoy spill-over benefits of Iskandar.

- We understand that interest for commercial, residential and industrial properties has been strong in Kulaijaya, Johor.

- GenP has room to sell more plots of industrial land as the group has about 5,000 acres of plantation land, which received approval for conversion many years ago. Currently, industrial land can be sold at more than RM60/sq ft in Kulai.

- Johor Premium Outlet is expected to receive a kicker from the second phase, which would be completed at endFY13F. GenP has secured about 60 tenants for the second phase. Cost of construction for the second phase is about RM50mil.  

Source: AmeSecurities