• GENP’s 1H18 core earnings of RM109.9m was below expectation, making up 32%/33% of our and consensus’ full year forecast.
• Although revenue increased 20% yoy to RM931.7m on account of higher offtake of refinery products, PBT declined 20% yoy to RM167.8m on higher costs and lower ASP of palm products.

• On qoq basis, lower FFB production from plantation-Malaysia, lower ASP of palm products, property sales and biotechnology contributed to the lower PBT growth.

• GENP declared an interim dividend of 4.75sen vs. 5.5sen for the same period last year, payable on 8 October 2018.

• We revised our FY18 and FY19 earnings forecast lower to RM265m and RM325m respectively, with new TP of RM10.50.

Overall results below expectations

Although revenue for 1H18 rose 10% to RM932m as its biodiesel and refinery operations recorded higher capacity utilisation from higher offtake, PBT dropped 20% to RM168m as a result of higher costs compounded by weaker palm products selling price. Hence, PBT margin dropped to 11.8% from 18.1% in 1H17.

Weaker qoq performance

With the exception of downstream manufacturing and plantation Indonesia, lower contribution from all segments on account of decline in FFB production from plantation-Malaysia, fall in ASP of palm products, and property sales, dragged 2Q18’s core PBT by 53% qoq to RM47.8m. Plantation-Indonesia improved qoq as higher FFB production is more than enough to compensate for the lower ASP of palm products.

Declared 4.75sen dividend

The board has declared an interim single tier dividend of 4.75sen for FY18 vs. 5.5sen for the same period last year, payable on 8 October 2018. At current market price, this would translate into DY of 0.5%.

Maintain to BUY

Given the recent earnings results, we adjusted our margin, ASP of palm products and production lower. As a result, we revised our FY18 and FY19 earnings forecast to RM265m and RM325m respectively from RM340m and RM369m previously. Consequently, we have adjusted our TP to RM10.50 from RM10.99 previously (as per sector report dated 9 August 2018) by applying a target PER of 26x on FY19 EPS. Maintain BUY.

Source: BIMB Securities Research - 29 Aug 2018