Highlights

• Genting Plantations (GENP) has proposed to acquire two parcels of adjoining leasehold land with a total land area of 380,902 sq ft from Genting Malaysia (GENM) for a cash consideration of RM65.8m.

• The two parcels of land located along Jalan Segambut Tengah within the Segambut commercial and industrial area. It comprising of a single storey office building, store, workshop, and parking yard. Financial Impact

• The proposed acquisition will not have any material impact on the earnings of GENP. Post the completion in 1QFY16, there would be a stable rental income for GENP even though it is relative small, coming from the tenancy agreement with GENM (RM750,000 for 2 years) for its existing operation and existing third party tenant of RM194,400 pa. This will enhance its property division's 2016F EBITDA by less than 1%.

• This acquisition is expected to be funded internally given its strong RM2bn cash holdings and net cash position of 0.2x as of 2Q15.

Pros/Cons

• The purchase price of RM65.8m (RM173psf) is deemed to be lower than the previous transacted price of RM280psf in Segambut by FCW Holdings and IJM Land. However, we note this is a leasehold land with 59 years remaining.

• Besides that, this would allow GENP to expand its property landbank into the Klang Valley area for future property development. Earnings

Forecasts

• Maintained.

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.

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

Valuation

• Maintain HOLD recommendation with SOP-derived TP of RM9.82 (see Figure 5).

Source: Hong Leong Investment Bank Research - 16 Oct 2015