• Overview. Adjusted for foreign exchange differences and gain arising from government acquisition amounting RM10m and RM7m respectively, 1Q20’s core profit increased 57% yoy and 48% qoq to RM74.2m. This was due to higher contribution from plantation segments on account of better margins from higher palm products selling prices that partially negated the lower FFB production recorded.
• Key highlights. Management guided that FFB production growth for FY20 might derail from initially target of 5% due to lagged effect of dry weather and the temporary suspension of operations in 9 estates in Sabah during the MCO.

• Against estimates: inline. 1Q20 core profit was within our estimates. Revenue was lower by 8%/12% yoy/qoq to RM569m on account of lower demand for refined palm products of Downstream segment. Nonetheless, bottom-line was lifted by higher minority interests and lower effective tax rate.

• Outlook. We are cautiously positive on the performance of GENP. We foresee that there might be a margin squeeze in downstream segment on demand and price concerns due to unfavourable palm oil-gas oil (POGO) spread and prolong COVID-19 pandemic. Although both its Johor and Genting’s Premium Outlets have resumed operation on the 9th and 4th May respectively, we foresee that the outlets may continue to experience lower patronage until concerns on the COVID-19 and the movement restriction fully subside.

• Our call. Maintain HOLD with new TP of RM10.00 vs RM10.60 previously based on target BV/share of RM5.50 and P/BV of 1.8x. We have revised our FY20 and FY21 earning forecast lower to RM145m (-24%) and RM154m (- 23%) respectively as we adjusted lower our margins on account of higher costs and lower ASP of palm product assumptions.

Source: BIMB Securities Research - 21 May 2020