Results

• 3Q16 core net profit of RM96m (qoq: +167.3%; yoy: +187.8%) took 9MFY16 core net profit to RM167.7m (+13.9%). The results came in above our expectation (accounting for 83% of our full-year forecast), but within market expectations (at 71% of consensus full-year forecast).

Deviations

• Higher-than-expected realized palm product prices.

Dividend

• None.

Highlights

• QoQ: 3Q16 core net profit rose 167.3% to RM96m on: (1) Higher palm product prices and FFB output recovery (see Figure 4), which boosted plantation segment’s EBITDA by 119.7%; (2) Land sale, which boosted property segment’s EBITDA by 73.5%; (3) Lower R&D expenditure; (4) Lower finance costs; and (5) Higher JV and associate contributions.

• YTD: Although revenue rose by only 1.7% to RM966.7m, 9M16 core net profit rose by 13.9% to RM167.7m, boosted mainly by higher palm product prices and lower R&D expenditure, which more than mitigated weaker property earnings, losses at downstream segment and higher finance costs.

• FFB output guidance: FY16 FFB output growth guidance is maintained at 5-6%, underpinned by FFB output recovery at Indonesia estates. Management believes GENP is able to achieve FFB output growth of more than 20% in FY17, underpinned by the expectation of a strong output growth at Indonesia estates arising from more areas maturing and moving to higher yield brackets.

• New planting to pick up in FY17: New planting in FY16 (targeted to achieve 2,000 ha) will be the slowest pace since FY07. Nevertheless, management believes that pace will pick up in FY17.

Risks

• Weaker-than-expected FFB production and OER

• Escalating CPO production cost.

• A sharp decline in vegetable oil prices.

Forecasts

• FY16 earnings forecast raised by 27.5% to RM257.4m, to reflect higher CPO price realized YTD, which more than offset a lower property earnings assumption. FY17-18 earnings forecasts tweaked slightly lower (by 1.2% and 4.3%) to RM284.7m and RM290.2m largely to reflect slightly lower property earnings assumption.

Rating

HOLD ( ↔ )

• While we like GENP for its efficient management team, young age profile, and healthy balance sheet. However, we believe near-term upside is capped by the weak property sentiment in Johor, a drag on its earnings growth.

Valuation

• SOP-derived TP is raised by 1.1% to RM10.84 (see Figure 5), as we incorporate GENP’s latest net debt in our valuation. Maintain HOLD recommendation.

Source: Hong Leong Investment Bank Research - 24 Nov 2016