Highlights 

Less exciting plantation earnings aside, we believe Genting Plant’s overall valuation could be boosted by its >5,000 acres of available land bank in Kulai which value has yet to be crystallized. 

We believe the continuing success of JPO, coupled with AEON’s plan to invest RM240m into a new mall in Kulai Jaya (scheduled to open by Dec-13) will bring positive economic impact to its surrounding area, hence boosting the value of Genting Plant’s ~5,000 acres of available land bank in Kulai area. 

Studies in the US show that malls boost economic activities which will then filter to higher household income, and property prices.

Catalysts 

• CPO prices recover further; 
• Better-than-expected sales at the property division; and 
• Higher-than-expected dividends.

Forecasts 

Maintained. Ceteris paribus, every RM100 change in our CPO price assumption will result in a 8.2-8.4% change in Genting Plant’s 2014 and 2015 projected EPS

Risks - downside 

• Weaker-than-expected FFB output; 
• Escalating labour cost, which will in turn result in higher production cost; 
• Weaker-than-expected recovery in edible oil demand and prices; and 
• Weaker-than-expected demand and prices of property in Johor.

Rating

HOLD 

Positives – (1) Increasing contribution from oil palm in Indonesia; (2) Strong balance sheet and (3) Potentially, upside surprises to earnings from JPO. 

Negatives – (1) Weak global economic outlook and impending excess supply of CPO will affect both demand and prices of CPO; and (2) Demanding valuation.

Valuation

 We are rationalizing our valuation method (from 17x 2014 EPS) to sum-of-parts which we believe is more reflective of the potential value of the property business on top of the plantation earnings. Post valuation methodology rationalization, our TP on Genting Plant is raised from RM7.64 to RM10.57

Source:Hong Leong Investment Bank Research - 12 Jun 2013