- Maintain BUY on Genting Plantations (GenP) with an unchanged fair value of RM11.60/share, which is based on an FY16F fully diluted PE of 25x. In the past seven years, GenP’s PE ranged from a low of 5.2x to a high of 39.8x. Average PE was 20x. We have tweaked GenP’s FY15F and FY16F EPS downwards for housekeeping reasons.

- GenP’s PE valuation has been re-rated due to the expansion in its earnings and landbank. We estimate that the group’s net earnings and planted landbank have almost doubled since 10 years ago. Also compared with IJM Plantations and TSH Resources, GenP’s PE multiple is the cheapest.

- GenP is flushed with cash after the recent issuance of its RM1bil 10-year Sukuk papers. After the conversion of its 127.6mil warrants by FY19F, the group would have another RM988.9mil in its cash reserves. The warrant has an exercise price of RM7.75/share.

- GenP is positioned to benefit from a recovery in CPO prices due to its young oil palm trees in Indonesia. In addition as the full impact of GenP’s downstream activities would only be felt in FY17F, the group would still be a relatively pure plantation player.

- GenP’s planted landbank of 62,000ha (nucleus) in Indonesia are now larger than Malaysia. Indonesia is expected to account for about 25% of GenP’s FFB production. FFB production in Indonesia is forecast to climb by 46% in FY15F. Incidentally, GenP’s plasma scheme in West Kalimantan was selected as the best in the province.

- The increase in GenP’s FY15F FFB output in Indonesia is anticipated to be driven by a rise of 10% or 8,000ha in mature areas. In comparison, IJM Plantations’ mature areas are estimated to expand by 15% in FYE3/16F while TSH Resources is envisaged to record a 10% increase in mature areas.

- Average age of GenP’s oil palm trees in Indonesia is four years old. About 50% of the trees in Indonesia are between zero and three years old while another 47% are aged from four to seven years old.

- Overall, GenP’s FFB production is forecast to grow by 9% in FY15F and 12% in FY16F. The group’s FFB output in Malaysia is expected to be flat.

- Production cost per tonne in Malaysia is expected to rise from RM1,178 in FY14 to a range of RM1,200 to RM1,300 in FY15 due to higher fertiliser costs. On the other hand, production cost per tonne in Indonesia could fall below RM2,000/tonne in FY15F due to the 46% expansion in FFB production.

Source: AmeSecurities Research - 23 Jun 2015