Results

1QFY14 core net profit of RM81.3m (yoy: +2.9%; qoq: - 33.2%) accounted for 19.8-22.2% of consensus and our fullyear forecasts. We consider the results within our expectation, as 1Q is historically weaker on the lower FFB output.

Deviations

None

Highlights

YoY… 1QFY14 core net profit inched up by 2.9% to RM81.3m mainly on the back of higher FFB output (in particularly, the Indonesian estates, as harvesting area increased by 11k ha vs. 1QFY13), higher palm product prices, and lower fertilizer cost (as a result of lower fertilizer application and prices), which altogether more than offset the absence of one-off industrial land sale gain.

QoQ… 1QFY14 core net profit declined by 33.2% mainly on lower FFB output (resulted from a shift in cropping pattern last year and the impact of dry season which affected FFB output in the peninsular region) and lower progress billing of its property projects.

2014 FFB output growth guided slightly lower. Management has guided for a slightly lower FFB output growth of 10% (vs. 10-12% it previously guided), due to the severe drought in 1Q (which has resulted in Malaysia FFB output declining by 3% for the first 4 months of 2014) as well as the anticipated long Raya holidays and occasional social issues in Indonesia that may drag FFB output growth in Indonesia. In our forecast, we are projecting overall FFB output to grow by 9% in 2014.

Property continues to do well. GENP has not experienced a slowdown in take-up for its property launches in Johor (excluding the one-off RM85m industrial land sale registered in 1QFY13, property revenue grew by 44.2% in 1QFY14). Management remains confident that property revenue in FY14 could at least come close to last year’s revenue of ~RM186m (excluding industrial land sale) given its focus on affordable housing.

Risks

• Economic uncertainties in world’s major economies that may hurt demand and prices of edible oil (including palm oil); and
• Escalating CPO production cost.

Forecasts

Maintain. Our sensitivity analysis indicates that every RM100/tonne change in our CPO price assumption will result in 8.1% and 5% changes in our FY14 net profit forecast and TP respectively.

Rating

BUY

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

Negatives – (1) Less upbeat overall demand outlook for property sector; and (2) low liquidity.

Valuation

SOP-derived TP nudged up marginally (by 4 sen/share) to RM12.16 as we updated the latest net debt position. Maintain BUY recommendation.

Source: Hong Leong Investment Bank Research - 29 May 2014