• GENP’s 9M18 PATAMI of RM150.6m came-in below expectation, making up 57%/52% of our and consensus’ full year forecast.

• Despite increase in revenue by 11% yoy to RM1.42bn on improved offtake from downstream segment and increase sales in property segment, PBT declined 39% yoy to RM192.9m on higher costs and weaker ASP of palm products.

• On quarterly basis, lower contribution from plantation segment on account of lower ASP of palm products contributed to the lower PBT growth.

• We revised our FY18 and FY19 earnings forecast lower to RM212m and RM235m respectively as we adjust our costs, production and ASP of palm products assumptions. Downgrade to HOLD with new TP of RM10.33 vs. RM10.50 previously.

Overall results below expectations

Although revenue for 9M18 rose 11% to RM1.42bn as its biodiesel and refinery operations recorded higher capacity utilisation from higher offtake aided by higher sales from property segment, PBT dropped 39% to RM193m as a result of higher costs and weaker palm products selling prices. Both plantation Malaysia and Indonesia recorded lower EBITDA and, hence, PBT margin dropped to 13.6% from 24.9% in 9M17 (Table 1 and 2).

Weaker qoq performance

On quarterly basis, weakness in ASP of palm products and declining downstream margin dragged Group PBT lower to RM25m vs. RM37m in 2Q18. Nonetheless, the property segment registered higher profit on higher sales and completion of works with land sales in Tebung estates, Melaka with net surplus of RM3.1m.

Changed forecast, downgrade to HOLD

Although we are bearish on CPO price outlook for next year, we are positive on the progress achieved in its Indonesia estates and, hence, expect FFB production for next year to grow by +12% to 2.36m tonnes from FY18 estimates of 2.1m tonnes. We believe that higher FFB and CPO production in FY18 would mitigate the softness of palm products prices. We have lowered our CPO price assumption by 6%/5% for FY18/FY19 to RM2,200/MT and RM2,280/Mt respectively.

As a result, we revised our FY18 and FY19 earnings forecast to RM212m and RM235m respectively from RM265m and RM325m previously. Consequently, we have adjusted our TP to RM10.33 from RM10.50 previously based on price to book target of 2x and historical 5-years average GENP’s BV/share of RM5.17. Downgrade to Hold.

Source: BIMB Securities Research - 30 Nov 2018