Genting Plantations (GENP) 1Q23’s PATAMI of RM38.8mn (QoQ: -31%, YoY: -67%) was below our and consensus estimates accounting for only 11% and 10% of full year forecast respectively. In view of challenging business environment given stiff competition and volatility in commodities prices, we revised lower our FY23 and FY24 earnings forecast to RM199mn and RM176mn respectively from RM342mn and RM298mn previously. Hence, a cut to our Target Price to RM5.87 from RM6.17 previously based on avg. FY23F/24F BV/share of RM5.87 and P/BV of 1x. Maintain HOLD.

• Below expectations. GENP’s 1Q23 PATAMI of RM38.8mn (QoQ: - 31%, YoY: -67%) was below our and consensus’ expectations.

• QoQ. GENP core PBT declined to RM35.7mn in 1Q23 (-64% QoQ) which is in line with lower revenue of RM584.3mn (-26% QoQ) mainly due to lower production and palm product prices of CPO and PK for Plantation segment and lower profit contribution from both the Downstream and Property segments – Table 2 and 3.

• YoY/YTD. On YoY basis, a lower core PBT (-69% YoY) was due to lower profit contribution from Plantation segment as margin decreased by 6ppts to 24% on account of weaker palm product prices, amid 4% increase in FFB production to 456,541 MT. This was further attributed by higher costs of sales amounting to RM454mn (+53% YoY) and a leap in finance costs of RM72mn (+38% YoY).

• Outlook. Although we maintain a positive outlook for sustainable earningsin FY23, driven by strong production growth in Indonesia for upstream segment and resilient contributions from premium outlets, we acknowledge the possibility of further downward pressure on upstream and downstream segments. This pressure is primarily attributed to the projected decrease in average selling prices of palm products and lower-than-expected production levels, especially in the Malaysian operations coupled with an increase in operating costs and finance costs as well as stiff competition from other edible oils.

• Our call. As we see potential downside risk to earnings given the projected moderation in palm product prices and challenging business outlook, we revised lower our FY23/FY24 earnings forecast to RM199mn/RM176mn respectively from RM342mn/RM298mn previously. Hence, a cut to our Target Price to RM5.87 from RM6.17 previously based on avg. FY23F/24F BV/share of RM5.87 and P/BV of 1x. GENP is a HOLD. As such, we advise investors to take any stock price rally as an opportunity to lock in their profit.

Source: BIMB Securities Research - 25 May 2023