Results

• 4Q17 core net profit of RM93.3m (qoq: +18%; yoy: -34.6%) took FY17 core net profit to RM323.2m (+4.2%). The results came in within expectations, accounting for 96.9-100.6% of consensus and our forecasts.

Deviations

• Broadly in line.

Dividend

• Recommended final DPS of 8 sen and declared special DPS of 11 sen (ex-date: 9 Mar 2018), bringing total DPS for the full year to 26 sen (translating to a dividend yield of 2.7%).

Highlights

• QoQ… 4Q17 core net profit increased by 18% to RM93.3m, driven mainly by higher FFB production from plantation operations in Malaysia, higher PK selling price, higher property earnings, and improved offtake for refinery and biodiesel products.

• YoY… 4QFY17 core net profit declined by 34.6% to RM93.3m as lower losses at biotechnology division and better downstream performance were more than offset by lower palm product prices, higher profit unrealized profit from inter-segment sales, and lower property earnings.

• YTD… FY17 core net profit rose 4.2% to RM323.2m as weaker property earnings and higher finance costs were more than compensated by higher plantation earnings (arising from higher FFB production and CPO prices), better downstream performance, lower losses at biotechnology division, and improved earnings contribution from premium outlets.

• Indonesia continues to drive FFB production growth…

Management is guiding FFB production to grow 20% in FY18 and Indonesia will remain as the driver to FFB production growth (as more areas are moving into mature (estimated at ~5,000 ha) and higher yielding bracket).

• EBITDA at property division shrank by 44.3% to RM23.5m in FY17, mainly on the back of different product mix. Management guided that earnings at the division will likely remain flattish in FY18, as it continues to see challenging demand prospects for properties that are valued at RM500k/unit and above (which command higher margin vis-à-vis affordable housing products).

Risks

• Weaker-than-expected FFB production and OER; and (2) Escalating CPO production cost.

Forecasts

• We tweak our FY18-19 net profit forecasts lower by 3.7- 4.7%, to account for slightly higher CPO production cost assumption for Indonesia operations and lower EBIT margin assumption for property division.

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

• Post earnings adjustment, SOP-derived TP is lowered by 1.6% to RM11.32 (see Figure 5).

Source: Hong Leong Investment Bank Research - 27 Feb 2018