- Maintain BUY on Genting Plantations Bhd (GenP) with a lower fair value of RM11.25/share. Our fair value implies an FY16F fully-diluted PE of 25x. We have revised GenP’s FY15F earnings forecast downwards by 5% to account for weaker plantation and property earnings.

- We understand that a 1% appreciation of the USD against the Indonesia Rupiah would result in higher interest expense of RM3.5mil for GenP. About 54% of the group’s borrowings are denominated in USD.

- We gather the weather in Sabah was extremely dry in May and June. Rainfall in Sabah was 28% lower YoY in 1HFY15. Rainfall has improved in Sabah in July and August but the weather could become dry again in September. In contrast, it was wet in Kalimantan as reflected in the huge rainfall of 1,500mm to 2,300mm in 1HFY15.

- Also, we understand that the hike in the pay of harvesters in Peninsular Malaysia in April 2015 is expected to increase GenP’s wage expense by RM2.5mil in FY15F and RM1.7mil in FY16F.

- GenP’s downstream manufacturing division, which includes biodiesel activities, recorded a small EBITDA of RM0.9mil on revenue of RM27mil in 2QFY15. The unit recorded a loss of RM1.1mil in 1QFY15. Due to its huge annual production capacity of 100,000 tonnes in Lahad Datu, GenP is expected to benefit from Malaysia’s proposal to expand B7 to the industrial sector.

- FFB production was flat YoY in 1HFY15. Comparing 2QFY15 against 2QFY14, group FFB output recovered by 14.7%. Indonesia accounted for 22.4% of GenP’s FFB output in 1HFY15 (1HFY14: 18.1%) while Malaysia accounted for the balance 77.6%. FFB production in Indonesia surged by 25.0% YoY in 1HFY15 while the Malaysia unit recorded a FFB output decline of 4.4%.

- GenP’s FFB production is expected to rise by 7% in FY15F. FFB output in Malaysia is anticipated to be flat while in Indonesia, FFB production growth is estimated at 35%.

- Production cost per tonne of the Indonesia plantation unit was RM2,200 in 1HFY15, which was flat YoY while the Malaysia division recorded a production cost of RM1,200/tonne to RM1,300/tonne compared with RM1,220/tonne in 1HFY14.

Source: AmeSecurities Research - 26 Aug 2015