Stock Name: GENP
Company Name: GENTING PLANTATIONS BERHAD
Research House: RHB

Genting Plantations Bhd
(July 28, RM7.10)
Maintain underperform at RM6.65 with higher fair value RM6.70 (from RM6.50): Key highlights from our meeting with Genting Plantations (GP) include: (i) CPO price outlook; (ii) No El Nino impact yet, slower production growth seen in 2HFY2010; (iii) Indonesian plantation contributions to start coming through from FY2011; (iv) change in labour permit regulations; (v) production costs to rise, not drop in FY2010; and (vi) quiet on property development front, but potential coming from Chelsea Outlets and Kulai project.

GP's fresh fruit bunch (FFB) production growth has recovered from the weakness seen in 1H2009, to post an 11.7% year-on-year (y-o-y) growth year-to-date June 2010. Going forward, however, management expects this y-o-y growth to slow in 2H2010, given the recovery in FFB production which was seen in 2H2009. For the whole of 2H2010, management expects FFB production to be relatively flat y-o-y, which would bring FY2010 FFB production growth to approximately 6-7% y-o-y. Contributions from GP's Indonesian plantations should already start contributing in FY2011, albeit very minimally, but we expect a larger impact from Indonesia to be felt from FY2012, contributing about 11% to total production.

We believe more exciting prospects await once GP's Chelsea Premium Outlets and the surrounding area in Kulai start to be developed, given that the land is within the Iskandar economic zone and is easily accessible at the intersection between the Second Link to Singapore and the North-South Expressway. In addition, we understand there will be a trumpet interchange going into the area which is targeted to be completed by Oct 2011 (built by Ireka Bhd), which will make access even more convenient.

Main risks include: (i) a convincing reversal in crude oil price trend resulting in reversal of CPO and other vegetable oils price trend; (ii) weather abnormalities resulting in an over or under supply of vegetable oils; iii) revision in global biofuel mandates and trans-fat policies; and (iv) a quick global economic recovery, resulting in higher than expected demand for vegetable oils.

We tweaked our forecasts by -2% for FY2010, +2.9% for FY2011 and +9.1% for FY2012.

Post-earnings revision, we raise our fair value to RM6.70 (from RM6.50), based on an unchanged 14.5 times CY2011 target PER. We maintain our underperform recommendation, as we believe valuations remain stretched at current levels. Catalysts would include a spike in CPO prices, given GP's sensitivity to this, as well as foreseeable contributions from its integrated property project in Kulai. ' RHB Research Institute, July 28


This article appeared in The Edge Financial Daily, July 29, 2010.