Results

• Within our expectation… 3Q17 core net profit of RM79.1m (qoq: +3.7%; yoy: -17.7%) took 9M17 core net profit to RM229.9m (+37.1%). The results came in within our expectation, accounting for 71.5% of our full-year forecast. Against market consensus, the results account for 68.1% of consensus full-year estimates.

Deviations

• Broadly in line.

Dividend

• None for the quarter.

Highlights

• QoQ… 3Q17 core net profit increased marginally (by 3.7%) to RM79.1m, as lower property earnings and higher finance costs were more than mitigated by higher plantation and JV earnings.

• YoY… Although revenue was higher by 8.2%, 3Q17 core net profit declined by 17.7% to RM79.1m, due mainly to: (1) Lower FFB production and higher unrealized profit from inter-segment sales for plantation operations in Malaysia; (2) Lower property earnings; and (3) Higher finance cost.

• YTD… 9M17 core net profit rose 37.1% to RM229.9m mainly on the back of: (1) Higher FFB production and palm product prices, which drove operating profit at plantation division by 40.8% to RM310.9m; and (2) Lower R&D expenses at biotechnology division.

• FFB production increased by 24.6% to 1.35m tonnes in 9M17… As lagged impact of El Nino subsided and more areas moving into mature and higher yielding bracket in Indonesia. Management is keeping its FFB output growth guidance of 15% for the full year. Management indicated that FFB output growth trajectory will sustain into 2018 (if not better), as more areas are moving into mature (estimated at ~17,000 ha) and higher yielding bracket.

Risks

• Weaker-than-expected FFB production and OER

• Escalating CPO production cost.

• A sharp decline in vegetable oil prices.

Forecasts

• Maintained.

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

• Maintain SOP-derived TP of RM11.50 (see Figure 4).

Source: Hong Leong Investment Bank Research - 23 Nov 2017