• Overview. GENP’s 2Q20 core PBT improved more than 100% to RM188m as revenue increased 45% to RM790m underpinned by higher contribution from 1) plantation segment on account of higher palm products selling prices of CPO and PK realised, 2) higher margins from downstream manufacturing segment, and 3) higher sales in property segment. On quarterly basis, the higher earning was attributed to a solid contribution from both plantation and downstream segment on account of higher ASP of palm products, FFB production and sales volume.
• Against estimates: Above. 1H21 core earnings were above our expectation. Revenue and core PBT increased 19% and more than 100% respectively to RM1,327m and RM273m, resulting from higher ASP of pam products and increase in FFB production as well as better property sales and higher margins in downstream manufacturing segment. Impairment losses on PPE and FV loss on financial assets were the key variance in our core earnings.
• Dividend. The Board has declared an interim DPS of 11sen for 2Q21 (2Q20: 6.0sen) payable on 24 Sept 2021 – translating to DY of 1.5%.
• Outlook. We are optimistic on GENP’s earnings performance and we expect the catalyst will be plantation segment on higher ASP of palm products and improvement in production. There is high possibility of continuing margin squeeze in downstream segment however, on demand and price concerns due to unfavourable palm oil-gas oil (POGO) spread and prolonged COVID-19 pandemic which have caused slow uptake in property segment and slow sales and patronage of Premium Outlets.
• Our call. Upgrade to BUY with unchanged TP of RM9.00, based on BV/share of RM5.50 and historical 3-yrs avg. P/BV of 1.65x. Following this result, we revised our FY21/FY22 earnings forecast higher to RM375m and RM351m respectively from RM219m and RM207m previously as we adjusted our production, ASP of palm products, costs and margins assumptions. We cut our production number by 8%/5% to 2.13m/2.23m tonnes respectively for FY21/22 whilst raising ASP forecast for CPO to RM3,150/MT for FY21 and RM2,700/MT for FY22 from RM2,600/MT and RM2,500/MT previously.

Source: BIMB Securities Research - 26 Aug 2021