• Overview. 2Q19 core profit dropped 57% yoy on impact of weaker ASP of palm products and higher costs of sales. On qoq basis, weakness in ASP and declining downstream margin dragged the earnings lower.

• Key highlights. FFB production in 2Q19 and 1H19 was higher yoy (Table 3) due to a recovery in Malaysia estates from a weather-induced low production in the preceding year and increased mature areas and improved age profile in Indonesia operations.

• Against estimates: below. 1H19 core profit was below ours and consensus’ estimates. Although revenue was recorded at over RM1b as its refinery and biodiesel operations recorded higher capacity utilization from higher offtake, along with higher sales from property segment, earnings dropped as a result of higher costs and weaker ASP.

• Dividend. A 3.5 sen DPS was declared, implying 151% dividend payout and brought its total DPS to 3.5 sen for 1H19 (1H18: 4.75sen/share).

• Outlook. In addition to better earnings contribution from JVs, we are positive on the progress achieved in its Indonesian estates and expect FFB Group production to grow by +13% to 2.36m tonnes this year. However, we are cautious that the higher production in FY19 and decent earnings contribution from downstream and JVs are insufficient to mitigate the weakness in palm product prices.

• Our call. Maintain HOLD with TP of RM10.33 based on P/B of 2.0x and historical 5-yrs avg. GENP’s BV/share of RM5.17. We have revised our FY19 and FY20 earnings forecast lower to RM149m (-11%) and RM173m (-6%) respectively as we adjusted our ASP of palm products lower by 7%-10%.

Source: BIMB Securities Research - 29 Aug 2019