Results

• FY14 core net profit of RM380.4m (+20.9%) came in above expectations, surpassing our and consensus estimates by 22.6% and 21.4% respectively. Excluding earnings from land sale, the earnings exceeded our forecast by 13.7%.

Deviations

• Better-than-expected contribution from biodiesel sales; and

• Higher-than-expected industrial land sale.

Dividend

• Proposed final DPS of 4 sen and declared special DPS of 3 sen (ex-date: 12 Mar 2015; payment date: 27 Mar 2015), bringing total DPS for the full-year to 10 sen.

Highlights

• QoQ… 4QFY14 core net profit rose by 19.4% to RM145.4m, driven mainly by higher overall FFB production and profit recognition from industrial land sales, which altogether more than offset lower palm product prices.

• FFB output in FY14 rose 9% to 1.66m mt, driven largely by a 66% increase in FFB production in Indonesia. Management expects overall FFB production in 1Q15 to decline by 5% yoy on the back of lagged effect arising from dry weather in 2014 (which will in turn have pronounced negative impact on FFB production in Malaysian estates). Given the anticipated weak FFB production in 1Q15, we note that management has guided down its overall FFB production to 10-12% (from 13% previously). Estates in Indonesia will remain as the main growth driver (given its younger age profile), which production is expected to grow by circa 70% to 520k mt.

• Production cost for Malaysian estates in FY15 is guided to increase to RM1,250/mt (from RM1,176/mt in FY14) mainly on the back of higher fertilizer cost (but partly offset by lower transportation cost).

• Biodiesel… GENP has registered more than 36k mt of biodiesel sales (of which most of it was exported in 4Q14). While demand from the export market has turned quiet (arising from lower crude oil prices), management highlighted that it is targeting a plant utilization rate of at least 40% for one of its two biodiesel plants in FY15, thanks to the implementation of B7 mandate effective Dec-14.

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

• Maintained, as the significant land sale gain in FY14 will unlikely be repeated in FY15.

Rating

HOLD

Positives

• (1) Increasing contribution from oil palm inIndonesia; (2) Strong balance sheet; and (3) Potentially, upside surprises to earnings from JPO.

Negatives

• (1) Less upbeat overall demand outlook forproperty sector; and (2) low liquidity.

Valuation

Maintain SOP-derived TP of RM10.50 (see Figure 5) and HOLD recommendation on the stock.

Source: Hong Leong Investment Bank Research - 26 Feb 2015