- Maintain HOLD on Genting Plantations Bhd (GenP) with an unchanged fair value of RM10.75/share. Our fair value implies a FY15F PE of 21.4x.

- GenP’s 9MFY14 results were below consensus estimates but within our expectations.

- Property division provided a buffer to the QoQ decline in plantation profits in 3QFY14. Plantation EBITDA shrank 7% QoQ to RM100.7mil as average CPO price fell by 14.2% to RM2,216/tonne in 3QFY14. However, property EBITDA surged 53.9% to RM25.7mil on recognition of land sales and progress billings.

- GenP’s FFB production expanded by 11.4% YoY in 9MFY14. Indonesia accounted for 17.8% of the group’s FFB output. GenP’s FFB production in Indonesia surged by 76.5% from 119,000 tonnes in 9MFY13 to 210,000 tonnes in 9MFY14.

- We understand that GenP’s Sabah plantation unit may achieve its highest FFB production in November this year. As such, FFB production in Sabah in 4QFY14 may be higher than 3QFY14. However, FFB yields in Peninsular Malaysia will not be as good due to lagged impact of the dry weather, which took place in 1QFY14.

- We gather that rainfall has been adequate in Malaysia in 9MFY14. However, Kalimantan faced dry weather in 3QFY14. Some of GenP’s estates in Kalimantan received monthly rainfall of less than 150mm in 3QFY14. Hence, the group’s FFB yields in Indonesia may be affected in FY15F.

- In spite of this, GenP’s FFB production in Indonesia is still expected to surge double-digit in FY15F underpinned by new mature areas. The group’s FFB output is forecast to climb by almost 70% to 540,000 tonnes in FY15F. Including Malaysia, GenP’s FFB production is expected to increase by 13% in FY15F.

- Production costs in Indonesia were RM2,160/tonne in 9MFY14. Including Malaysia, GenP’s production costs were RM1,370/tonne in 9MFY14. For the full year, production costs in Malaysia are estimated at RM1,200/tonne.

- Fertiliser costs are expected to rise by 5% in 1HFY15 dragged by higher potash and phosphate prices. GenP’s fertiliser costs declined by 21% YoY in 9MFY14 partly due to the break-up of the potash oligopoly in East Europe/Russia.

Source: AmeSecurities