Highlights

We walked away from our recent small group meeting with a positive feeling about Genting Plantations (GENP).

We are still keeping to our 2014 FFB output growth projection of 9%, as Sabah and Kalimantan (where majority of GENP’s planted areas are located) were not severely affected by the recent drought and its oil palm estates in Indonesia is still in fast growing phase, thanks to the young tree profile.

We believe GENP is well positioned to benefit from the implementation of B5 biodiesel programme in East Malaysia (expected by Jul-14), as: (1) The pricing formula for palmbased biodiesel set by the Government indicates that biodiesel producers will be profitable from producing biodiesel; and (2) The sheer size of biodiesel demand in East Malaysia (at ~150,000 tonned p.a., according to GENP), coupled with the EU’s recent antidumping measure on biodiesel producers in Malaysia will likely result in steady uptake for biodiesel in the region.

GENP has not experienced a slowdown in take-up for its property launches in Johor. For the full year of 2014, management is positive that property revenue will at least come close to last year’s (excluding industrial land sale).

Catalysts

• CPO prices recover further;
• Better-than-expected sales at the property division; and
• Better-than-expected contribution from biodiesel plant.

Forecasts

Maintained. Ceteris paribus, every RM100 change in our CPO price assumption will result in ~8% 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

BUY

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

Negatives – Tight share liquidity.

Valuation

We are keeping our SOP-derived TP of RM12.12 and BUY recommendation on the stock unchanged pending its 1Q14 results announcement next month.

Source: Hong Leong Investment Bank Research - 23 Apr 2014