- We are keeping our SELL recommendation on Genting Plantations (GenP) with a lower fair value of RM10.45/share versus RM11.35/share previously. Our fair value is based on a FY14F fully diluted PE of 23x.

- GenP is currently trading at 23.7x fully diluted FY14F EPS. 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.

- Like the other plantation companies, GenP’s 3QFY13 net profit was affected by the depreciation of the Indonesian Rupiah against the US$. This resulted in an unrealised forex loss of US$39.5mil in 3QFY13. GenP had US$254.6mil borrowings as at end-Sept 2013.

- Excluding the forex loss, GenP’s 9MFY13 core results were below our forecast and consensus expectations due to weaker-than-expected EBITDA margin for the plantation division. We have reduced GenP’s FY13F core net profit by 12%.

- GenP’s Indonesian plantation unit recorded an EBITDA of RM5.1mil in 9MFY13 versus a loss of RM17.6mil in 9MFY12. The division’s EBITDA was flat QoQ at RM2.5mil in 3QFY13.

- GenP reckons that average CPO price would be higher in FY14F compared with FY13F. The group thinks that CPO price would average RM2,500/tonne in FY14F.

- GenP is also hopeful that production cost per tonne would decline in FY14F. The group has locked in 70% of its fertiliser requirements for FY14F at prices which are 23% lower than FY13F’s. The cost of GenP’s fertiliser in FY13F is expected to be 11% lower than FY12.

- GenP recorded a production cost of RM1,306/tonne in 3QFY13 and RM1,436/tonne in 9MFY13. The production cost of RM1,436/tonne in 9MFY13 was 3% higher YoY due to a fall in palm kernel prices.

- We understand that FFB output in November would be 3% to 4% higher than October. This means that palm oil production would be peaking in November as opposed to the previous view of October.

- Finally, GenP is exporting biodiesel to Europe. Revenue from biodiesel exports were RM27.9mil in 3QFY13. We gather that GenP is producing about 5,000 tonnes of biodiesel every month currently. 

Source: AmeSecurities