• Despite an 18% yoy increase in revenue to RM621.7m on higher offtake of biodiesel and refined palm products from downstream segment and higher sales volume from plantation segment, PBT dropped 54% to RM59.9m owing to higher costs of sales and weaker ASP of palm products.

• Nonetheless, 1Q19 earnings was within our expectation, making up 23% of our full year forecast.

• On qoq basis, PBT was higher on account of higher contribution from downstream and plantation segment aided by better CPO selling price.

• No change in earnings forecast for FY19 and FY20, hence, we maintain HOLD recommendation with an unchanged TP of RM10.33.

Overall results satisfactory

Revenue and PBT for 1Q19 rose 29% and >100% respectively to RM621.7m and RM59.9m against RM482m and RM14.8m in 4Q18. The increase in revenue was due to higher offtake from biodiesel and refinery operation, supported by higher contribution from plantation segment on the back of better CPO selling price (Table 3). Plantation margin improved to 31.4% in 1Q19 from 23.6% in 4Q18, while downstream segment rose to 5.5% from 1.1% given both its biodiesel and refinery operations registering higher offtake and capacity utilisation. This resulted in PBT margin increasing to 9.6% from 3.1% in 4Q18.

Higher costs of sales dragged yoy performance

Although revenue rose 18% yoy on account of its biodiesel and refinery operations recorded higher capacity utilisation from higher offtake, coupled with higher sales volume from plantation segment, PBT dropped 54% to RM59.9m against RM130.6m in 1Q18. The lower PBT resulted from higher costs of sales and weaker palm products selling prices. Cost of sales increased 31% yoy to RM499.4m whilst ASP of CPO and PK dropped 17% and 38% respectively to RM1,974/MT and RM1,283/MT. A net foreign exchange loss of RM5.5m vs. RM13.8m gain in 1Q18 also contributed to the lower profit. Hence, PBT margin fell to 9.6% from 24.7% in 1Q18 (Table 1 and 2).

Maintain HOLD with unchanged TP of RM10.33

Although we are bearish on palm products price outlook, we are positive on the progress achieved in its Indonesia estates and expect FFB Group production to grow by +13% to 2.36m tonnes this year. We believe that higher FFB production would somehow cushion the softness of palm product prices. We make no change in our earnings forecast. We maintain our TP of RM10.33 (based on price to book target of 2x and historical 5-years average GENP’s BV/share of RM5.17) and HOLD recommendation.

Source: BIMB Securities Research - 24 May 2019