• GENP’s 1Q18 core earnings was slightly below our and consensus expectation, making up 19% of our full year forecast.

• PBT increased 22% yoy to RM130.6m on the back of 32% increase in revenue of RM529.1m as higher offtake from its refinery and higher progressive completion of development projects.

• On qoq basis, lower contribution from all segments on account of lower FFB production from plantation-Malaysia, lower ASP of palm products, property sales and refinery capacity utilization contributed to the lower PBT growth.

• We have revised our earnings forecast lower to RM345m for FY18 with new TP of RM11.16 (RM11.92 previously)

Overall results still satisfactory

Revenue and PBT for 1Q18 rose 32% and 22% respectively to RM529m and RM131m from RM400m and RM107m in 1Q17. The increase in revenue was due to higher offtake from refinery and higher progressive completion of property development projects - mitigating the lower revenue from plantation segments as a result of weaker palm products selling price. Hence, PBT margin dropped to 24.7% from 26.8% in 1Q17.

Weaker qoq performance

With the exception of plantation-Indonesia, lower contribution from all segments on account of lower FFB production from plantation Malaysia, lower ASP of palm products, property sales and refinery capacity utilisation, dragged 1Q18’s PBT lower by 8% qoq to RM131m. Plantation-Indonesia improved qoq as higher FFB production is more than enough to compensate for the lower ASP of palm products. However, plantation-Malaysia was partly negated by the realisation of profit from the drawdown of stocks from inter-segment sales of CPO amounting to RM25m.

Banking on Indonesia estates

We are still positive on GENP due to progress in Indonesian estates as well as Malaysian estates that saw FFB production increased 28% and 15% respectively from 1Q17. The higher output from Indonesia segment was a result of additional harvesting areas including from the newly-acquired subsidiary, PT Kharisma Inti Usaha. The earnings risks moving forwards would depend on the FFB production as well as palm product prices.

Maintain to BUY

We have done some housekeeping and revised our FY18 and FY19 earnings forecast to RM345m and 388m respectively from RM368m and RM390m previously. Consequently, we have changed TP to RM11.16 from RM11.92 previously by applying a target PER of 26x on FY18 EPS. Maintain BUY.

Source: BIMB Securities Research - 24 May 2018