• GENP’s 1H17 net earnings came in-line with our expectation.

• PBT increased more than three-fold to RM210.8m on the back of 49% increase in revenue to RM846.5m, mainly due to higher palm product prices, higher FFB production as well as higher sales of biodiesel and refined palm products.

• Group FFB production increased 34% yoy in 1H17, driven by Indonesia-estates that grew by 80% yoy to 315k MT and by 16% (547k MT) in Malaysia.

• Maintain our FY17 and FY18 earnings forecast.

• Raising target price to RM11.92. Upgrade to BUY.

Earnings came-in within expectation

GENP’s 1H17 earnings of RM143.5m is within our expectation. This was largely attributed to better plantation profit due to higher ASP of CPO and PK, higher FFB production as well as higher sales of biodiesel and refined palm products. Hence, there was an improvement in EBITDA margins to 35% against 27% in 1H16.

Cost of production was well maintained

Earnings for group plantation segment more than doubled to RM288.3m, thanks to the Plantation-Indonesia segment which saw earnings increased more than 100% to RM100m (1H16: RM11.8m). The Group also managed to keep CPO cost lower for 1H17. Based on FRS116, the blended CPO production cost stands at RM1,550/MT with Malaysia at RM1,350/MT and Indonesia at RM1,900/MT – and expects to remain the same for full year 2017. The higher ASP realized and lower costs helped to improve the group’s plantation margin to 40.8% from 30.6% recorded in 1H16.

Property segment

As for property segment, the lower result was due to lower property sales during the period and the absence of additional profits recognized from completion of projects in 1Q16. According to management, total sales achieved in 1H17 was down by 11% to RM53m while its unbilled sales stood at RM21m as at 30th June 2017.

Interim dividend of 5.5sen

The board has declared a dividend of 5.5sen (FY16: 2sen) to be payable on 2 Oct 2017. We estimate a total dividend of 9.5sen for FY17 – down slightly from 10sen in FY16 – based on a payout ratio of 22%.

Source: BIMB Securities Research - 24 Aug 2017