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

Genting Plantations Bhd
(Dec 8, RM8.59)
Upgrade to buy at RM8.68 with target price of RM9.90: Genting Plantations' share price has recently dropped 4.4% from its high of RM9. This presents a good buying opportunity as we remain bullish on the outlook for crude palm oil (CPO) prices and optimistic about the future performance of the company. Based on our target price of RM9.90 and dividend yield of 1.31%, we are expecting a total returns of 15.37%, which exceeds our buy recommendation threshold of 15%.

We are expecting 5,594ha of mature palms in Malaysia to be augmented by 1,716ha in Indonesia, which only started producing in July. At its 10-year average fresh fruit bunch (FFB) yield of 21.62, we are projecting total production next year to increase by 17%.

We are expecting positive contributions from the property and biotech divisions. The proceeds from the sale of industrial land in Johor is expected to contribute to the total earnings in 2011, after the completion of the condition precedents in the S&P agreement. In addition, management is projecting that the biotech division will start making a profit in 2013.

We are positive on'' CPO prices moving forward. The high price is likely to be strongest in 1Q11, as these bullish factors will coincide with expected low output and uncertainties in weather conditions coupled with strong global demand for vegetable oils. We maintain our target industry mean price at RM3,000 per tonne and realised CPO selling price for Genting Plantations of RM2,670 per tonne (+5.5%) for CY2011.

We foresee potential future growth for Genting Plantations on the back of: i) more matured acreage; ii) the planting programme for 10,000ha to 15,000ha mainly in Indonesia; and iii) improved contribution from the property segment with 93.2 acres of industrial land in Kulaijaya sold to a third party.

We are upgrading Genting Plantations to a buy with unchanged target price of RM9.90. The target price is pegged at 18 times 2011 PER, based on one standard deviation of its 11-year average historical PER of 13 times. ' MIDF Research, Dec 8


This article appeared in The Edge Financial Daily, December 9, 2010.