-  We maintain Genting Plantations (GenP) as a BUY as the fall in its share price has made valuations attractive.

-  GenP is currently trading at a FY14F PE of 15.9x. In the past seven years, its PE ranged from a low of 5.2x to a high of 27.5x. Average PE was 17.6x.

-  We consider GenP’s results to be within our forecast as the group’s performance in 2HFY13 is expected to be better. Against consensus estimates however, GenP’s results were below expectations.

-  GenP’s plantation division in Indonesia swung into profitability in 2QFY13. The division recorded an EBITDA of RM2.6mil in 1HFY13 compared with a loss of RM11.2mil in 1HFY12.

-  GenP recorded a production cost of RM1,507/tonne in 1HFY13, which was 2% lower than the RM1,537/tonne achieved in 1HFY12. The fall in production cost per tonne was mainly due to higher palm oil production and a 12% decline in fertiliser cost.

-  For FY13F, GenP is expected to register a production cost of RM1,350/tonne compared with RM1,311/tonne in FY12.

-  We understand that GenP has been exporting more than half of its CPO production in Sabah to take advantage of the low export duty rate and to avoid the large discount to MPOB prices imposed by refiners.

-  Based on the export duty rate of 4.5%, the export tax would come up to RM60-70/tonne compared with the RM80-100/tonne discount imposed by Sabah refiners.

-  We also gather that GenP has been producing biodiesel for end-customers in the European Union. Biodiesel processing margins are positive and GenP’s biodiesel plant is currently operating at an utilisation rate of 50%.

-  GenP’s FFB production is expected to grow by 10% in FY13F. This is envisaged to be underpinned by the Indonesian plantation division, which is anticipated to achieve a FFB output of 160,000 tonnes to 200,000 tonnes in FY13F versus 81,287 tonnes in FY12.

-  FFB yield of GenP’s oil palm trees in West Kalimantan was 8.8 tonnes/ha in 1HFY13. We consider this to be high as the oil palm trees in West Kalimantan are less than five years old. Oil extraction rate of GenP’s fruits from its palm oil mill in W

Source: AmeSecurities