• Overview. Genting Plantations Bhd (GENP) core PBT declined to RM92.5mn in 3Q22  (-44% YoY/-72% QoQ) mainly due to lower production and palm product prices of  CPO and PK for Plantation segment and lower sales volume for the Downstream  segment – Table 2 and 3. This was also hampered by higher operating cost of  RM652.1mn (32% YoY, 1% QoQ) on account of higher manuring costs, field upkeep costs, labour and transport costs. As such, EBITDA margin was less-than-impressive or at 23.5% versus 34.2% in 3Q21 and 40.4% in 2Q22.

• Key highlights. Management is expecting FFB production for this year to be  comparable to the level attained in 2021 of 2.02mn tonnes (+5% YoY in 2023 mainly  supported by Indonesian estates) given setbacks in Indonesian and Malaysian  operations as several estates were impacted by heavy rainfall and flooding in July,  September and October 2022. This was further 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. On that score, FFB production dropped  slightly by 0.02% YoY and 3% YTD to 527,507 MT and 1,457,682 MT respectively.

• Against estimates: Inline. GENP’s 9M22 performance was within our estimate with  top-line PBT of RM621.8mn (+47% YoY) making up 70% of our full year forecast.

• Outlook. We are cautious on GENP’s earnings prospect moving forward given it  plantation segment earnings that is correlated to the movements in palm products price and Group’s production, given this segment contributes about c. 90% of profit  to the Group. Conversely, there is high possibility of continuing margin squeeze in  downstream segment and a slow uptake in property segment. Nonetheless, with the  reopening of new Genting theme park thanks to normalisation in economic activity,  we foresee both of its Johor and Genting’s Premium Outlets may see some support  given expected improvement in patronage and sales.

• Our call. In view of challenging business environment given stiff competition and  volatility in commodity prices, we revised our FY22/23 earnings forecast to  RM556mn/RM342mn respectively from RM618mn/RM343mn previously, as we  revisit our assumptions on margins, costs and expenses to be more reflective to our  current and future expectations. As such, we downgrade our call to a HOLD from a  BUY with a new TP of RM6.94 versus RM7.45 previously, based on BV/share of  RM6.20 and P/BV of 1.12x. Hence, we advise investor to take any stock price rally as  an opportunity to lock in their profit.

Source: BIMB Securities Research - 24 Nov 2022