Highlights

GENP is on track to deliver its FFB output growth guidance of 10% for 2014, underpinned mainly by an estimated additional 34k  ha  of  planted  land  bank  in  Indonesia  contributing  to GENP’s  FFB  by  end  of  this  year.  Moving  forward,  GENP’s planted land bank in Indonesia will continue to drive its overall FFB output growth, thanks to its relatively young age  profile. We  gathered  that  Indonesia’s  contribution  to  its  total  FFB output will increase to 30% by 2015  (from  13.5%  in 1H 2014).

The  implementation  of  B7  biodiesel  in  East  Malaysia (effective  Dec  2014)  is  positive  for  GENP,  as:  (1)  GENP  is one  of  the  only  two  biodiesel  producers  in  Sabah;  (2)  The pricing  formula  for  palm -based  biodiesel  set  by  the Government  indicates  that  biodiesel  producers  will  be profitable  from producing  biodiesel.

We believe new planting works will likely remain slow (and will unlikely  return  back  to  GENP’s  previous  new  planting  of 10,000  ha  p.s.  previously),  given  the  increasingly  stringent regulations, rising pres sure from environmentalists, as well as the  uncertainties  on  foreign  shareholding  cap  on  plantation assets in Indonesia.

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 9-10% 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  and biodiesel plants .
• Negatives  – Tight  share liquidity.

Valuation

We are keeping our SOP -derived  TP of  RM9.51  and  HOLD recommendation  on  t he  stock  unchanged  pending  its  3Q14 results announcement  scheduled  on 20 Nov  2014.

Source: Hong Leong Investment Bank Research - 17 Nov 2014