FY18 core net profit of RM151.9m (-53%) came in below expectations, accounting for only 70-72.2% of consensus and our estimates. Lower-than expected realised palm product prices and FFB production were the key variances to our forecast. Management guided that blended CPO production cost to lower by circa RM200 to RM1,500/tonne in FY19, as higher fertiliser cost and minimum wage hike in Indonesia will be offset by 10-15% FFB output growth (driven mainly by young age profile in its Indonesia estates). Maintain FY19-21 core net profit forecasts. Maintain HOLD rating with slightly higher SOP-derived TP of RM9.50 as we updated GENP’s latest net debt position.

Below expectations. 4Q18 core net profit of RM17.7m (QoQ: -27.2%; YoY: -81%) took FY18 core net profit to RM151.9m (-53%). The results missed expectations, accounting for only 70-72.2% of consensus and our estimates. Lower-than-expected realised palm product prices and FFB production were the key variances to our forecast.

Dividend. Recommended final DPS of 8.25 sen, bringing total DPS for FY18 to 13 sen, translating to dividend yield of 1.2%.

QoQ. Core net profit shrank 27.2% to RM17.7m in 4Q18, as seasonally higher FFB output, higher downstream earnings and JV contributions were more than offset by lower palm product prices, lower property earnings, higher losses from biotechnology segment and finance cost.

YoY. Core net profit declined by 81% to RM17.7m in 4Q18, as higher FFB output (driven mainly by higher crop output from Indonesia) was more than offset by lower palm product prices, weaker downstream performance, higher biotechnology losses and finance cost.

YTD. FY18 core net profit declined by 53% to RM151.9m, as higher FFB output, higher property earnings, improved JV contribution and turnaround at downstream division were more than offset by lower palm product prices, higher depreciation expenses at upstream plantation segment (arising from more mature areas) and finance cost. We note that the decline in realised palm product prices (CPO: -22%; PK: -31.2%) had impact of RM330m and RM300m on GENP’s EBITDA and PBT in FY18.

CPO production cost guidance. CPO production cost (on blended basis) in FY19 is guided to lower by circa RM200 to RM1,500/tonne in FY19, as higher fertiliser cost and minimum wage hike in Indonesia will be offset by 10-15% FFB output growth (arising from increased harvesting areas and more areas moving into higher yielding brackets in Indonesia).

Forecast. Maintain, as our FY19-21 core net profit forecasts are based on realised average CPO price assumptions of RM2,300-2,400/tonne.

Maintain HOLD, TP: RM9.50. SOP-derived TP raised by 1.3% to RM9.50 as we updated GENP’s latest net debt position. 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. Maintain HOLD rating.

Source: Hong Leong Investment Bank Research - 27 Feb 2019