Results

• 4Q16 core net profit of RM142.6m (qoq: +48.5%; yoy: +124.6%) took FY16 core net profit to RM310.2m (+47.3%). The results beat expectations, surpassing our and consensus forecasts by 23.3-33.5%.

Deviations

• Higher-than-expected realized palm product prices and FFB output (in particularly, its plantation operations in Indonesia).

Dividend

• Declared special DPS of 11 sen (ex-date: 7 Mar 2016) and proposed final DPS of 8 sen, bringing total DPS of the full year to 21 sen (translating to dividend yield of 1.9%).

Highlights

• QoQ… 4Q16 core net profit rose 48.5% to RM142.6m on (1) higher palm product prices and FFB output recovery (in particularly Indonesia), (2) higher property earnings (arising from completion of property projects), and (3) lower losses from downstream operations. Total FFB output increased by 21% to 531k mt and this was driven mainly by FFB output recovery in Indonesia.

• YTD… FY16 core net profit rose by 47.3% to RM310.2m, driven mainly by higher palm product prices, a 12% increase in FFB output in Indonesia, lower R&D activities at the biotechnology division. All these more than mitigated lower FFB output in Malaysia (which declined by 12%) and weaker property earnings (resulted from weak property sentiment).

• FY17 FFB output guidance… Management hinted a FFB output growth of 30% in FY17, underpinned by a single digit growth in FFB output in Malaysia and more than 40% output growth in Indonesia. The strong output growth in Indonesia will be driven by the addition of newly-mature areas (with an additional 8,000 ha of landbank to be added into mature category by FY17) and existing mature areas moving into higher yielding brackets.

Risks

• Weaker-than-expected FFB production and OER

• Escalating CPO production cost.

• A sharp decline in vegetable oil prices.

Forecasts

• We raise our FY17-18 net profit forecasts by 10.1-25.4%, largely to reflect higher FFB yield and lower production cost assumptions.

Rating

HOLD ( ↔ )

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

Valuation

• We raise our SOP-derived TP by 11.1% to RM12.03 (see Figure 5), to reflect: (1) the upward revision in our net profit forecasts; and (2) GENP’s latest net debt position. Maintain HOLD recommendation.

Source: Hong Leong Investment Bank Research - 23 Feb 2017