Although 1H18 core net profit of RM109.9m (-27.1%) accounted for only 32.1- 35.9% of consensus and our full-year forecasts, we consider the results within our expectation, as we expect 2H18 to come in stronger on the back of (i) higher FFB production, and (ii) lower CPO production cost (on the back of lower manuring cost in 2H18. Maintain FY18-20 net profit forecasts, SOP-derived TP of RM10.14, and HOLD rating on the stock.

Inline. 2Q18 core net profit of RM36.7m (QoQ: -49.9%; YoY: -51.8%) took 1H18 core net profit to RM109.9m (-27.1%). Although 1H18 core net profit accounting for only 32.1-35.9% of consensus and our full-year estimates, we consider the results within our expectation, as we expect 2H18 to come in stronger on the back of (i) higher FFB production, and (ii) lower CPO production cost (as we understand that Genting Plantations has already achieved 65% fertiliser application in 1H18).

Dividend. Declared interim DPS of 4.75 sen (ex-date: 13 Sep 2018). For the full-year, we are projecting total DPS of 6.5 sen, translating to dividend yield of 0.7%.

QoQ. 2Q18 core net profit shrank 49.9% to RM36.7m, mainly on the back of lower earnings from plantation (arising from lower FFB production and palm product prices) and property segments, which more than negated improved contribution from downstream segment.

YoY. 2Q18 core net profit declined by 51.8% to RM36.7m, dragged mainly by weaker plantation and property earnings, as well as higher finance cost, which more than offset improved downstream and JV earnings.

YTD. Although revenue was 10.1% higher, 1H18 core net profit declined by 27.1% to RM109.9m, as higher FFB production, turnaround at the downstream segment (at EBIT level) and slightly higher property earnings were more than offset by lower palm product prices and higher finance cost.

FFB output growth guidance lowered. Total FFB production rose by 12% to 965k tonnes in 2H18, as the 3% decline in Malaysia’s FFB production (shift in cropping pattern arising from wet weather in end-2017 and early-2018) was more than compensated by a 39% increase in Indonesia’s crops. Management guided down its group FFB production growth marginally for 2018 (>15% vs. 20% during last quarter), as it revised its FFB output guidance to negative 2-4% (on the back of lower FFB production YTD). Nevertheless, management remains positive that strong FFB production growth achieved in Indonesia during 1H18 will sustain into 2H18 (and remain as the driver to the group FFB production growth), as more areas are moving into mature and higher yielding bracket. In our forecast, we are projecting total FFB production to grow by 13%.

Forecast. Maintain, as we anticipate 2H18 to come in stronger on the back of higher FFB production and lower CPO production cost.

Maintain HOLD, TP: RM10.14. Maintain HOLD rating with unchanged SOP-derived TP of RM10.14. While we like GENP for its young age profile and healthy balance sheet, we believe near-term upside is capped by current weak CPO price and property sentiment.

Source: Hong Leong Investment Bank Research - 29 Aug 2018