-  Maintain HOLD on Genting Plantations Bhd (GenP) with an unchanged fair value of RM10.75/share. Our fair value implies a fully diluted FY15F PE of 21.4x. GenP is currently trading at a basic PE of 18.1x, in line with the simple average FY15F consensus PE of 18.3x of the medium cap plantation companies in Malaysia.

-  GenP’s FFB production is forecast to expand by 10% in FY14F and 11% in FY15F underpinned by an increase in mature areas.

-  New mature areas are estimated at 10,000ha each in FY14F and FY15F. We reckon that Indonesia would account for 19% of GenP’s FFB production in FY14F compared with 12% in FY13.

-  We think that GenP’s Indonesia unit would be breaking even in 2HFY14 as its production cost per tonne of RM2,000/tonne is just below the Malaysia benchmark CPO price of RM2,152/tonne currently. The Indonesia division recorded an EBITDA of RM20.7mil in 1HFY14 compared with RM2.6mil in 1HFY13.

-  GenP’s biodiesel operations are expected to start operations again after idling in 1HFY14.

-  Apart from the export markets, the group is in discussions to sell biodiesel to the local oil and gas companies for the roll-out of B5 in Sabah. We think that this would take place in early-FY15F.

-  In spite of this development, we do not expect biodiesel to be a major contributor to GenP’s bottomline as plantation would still be the main profit driver. Operating margin of biodiesel for the domestic market is anticipated to be better than those for the export markets.

-  We do not envisage any progress in GenP’s bio-refining venture in the near term. The group’s biodiesel cum biorefinery plant is anticipated to commence operations only in FY17F.

-  The plant, which has an annual capacity of 200,000 tonnes, is expected to produce high value palm oil derivatives. Technology for the production of the high value products is exclusively licensed to GenP by Elevance Renewable Sciences, Inc.

-  We reckon that construction of GenP’s second premium outlet would only commence in FY15F. The second premium outlet, which will be located at Resorts World Genting, is targeted for completion in FY16F. As a gauge, development cost of the first phase of the Johor Premium Outlet was RM149mil in FY11.

Source: AmeSecurities