• Overview. Genting Plantations Bhd (GENP) core PBT improved to RM326mn and RM506mn (+73% YoY/+86% YTD) in 2Q22 and 1H22 respectively as strong palm product prices were more than enough to compensate for the lower FFB production and sales volume of refined palm products – Table 2. On a QoQ basis, the encouraging result was due to higher profit contribution from both, the plantation and downstream segments as margins improved to 50%/4.7% respectively from 44%/2.4% in 1Q22.

• Key highlights. GENP’s FFB production dropped 8% YoY and 4% YTD to 492,917 MT and 930,175 MT respectively amid production setbacks in Indonesian operations as several estates were impacted by heavy rainfall and flooding. This was added by a reduction in harvesting area in Malaysia due to on-going replanting activities as well as lingering impact of drought-induced low production in Sabah. Nonetheless, management is optimistic that FFB production will catch-up in the 2H22 to recover by 3%-5% this year mainly supported by its Indonesian estates.

• Against estimates: Above. GENP’s 1H22 core earnings came-in above our estimates as it accounted 67% of our full year forecast.

• Dividend. An interim dividend of 15sen per share was declared for FY22 (1H21: 11sen), payable on 26 Sept 2022. At the current market price, this translates into DY of 2.3%.

• Outlook. Although we are cautious on GENP plantation segment given the likely slowdown in CPO price, we believe earnings will catch up in the 2H22 mainly driven by strong production from its Indonesian estates. Note that this segment contributes about c. 90% of profit to the Group. We believe the Group will still make a handsome profit as long as average selling price (ASP) of CPO is in a range of RM3,500/MT – RM4,500/MT.

• Our call. Maintain a BUY call with a new TP of RM7.45 versus RM9.57 previously, based on BV/share of RM6.21 and P/BV of 1.2x as we roll our valuation to FY23. Following the result, we revised our FY22 earnings forecast to RM618mn vs. RM491mn previously, as we revisit our assumptions on margins, costs and expenses to be more reflective of our current and future expectations. Note that we are seeking to see the management soon to get a better view on outlook especially on its Indonesian operation. We will also give in depth details on GENP operation in the results wrap up review.

Source: BIMB Securities Research - 25 Aug 2022