3Q19 core net profit of RM14.7m (QoQ: -6.1%; YoY: -39.4%) took 9M19 core net profit to RM77.5m (-42.2%), accounting for 48-52.6% of our and consensus fullyear estimates. We consider the results within our expectation as we anticipate a much stronger 4Q. During the conference call, management lowered its FY19 FFB production growth guidance (due to dry weather condition experienced earlier this year), and shared that high utilisation rate at biodiesel plant to sustain into 1Q20. We maintain our core net profit forecasts, but raised sum-ofparts TP by 5.5% to RM11.80 (as we roll forward our valuation base year for plantation segment to FY21 from FY20). Maintain BUY rating.

Within our expectation. 3Q19 core net profit of RM14.7m (QoQ: -6.1%; YoY: - 39.4%) took 9M19 core net profit to RM77.5m (-42.2%), accounting for 48-52.6% of our and consensus full-year estimates. We consider the results within our expectation as we anticipate a much stronger 4Q on the back of CPO price recovery (which has started since Oct-19), QoQ increase in FFB production, and lower manuring expense.

QoQ. 3Q19 core net profit declined by 6.1% to RM14.7m (from RM15.7m in previous quarter) mainly due to timing difference of refinery shipment (which has in turn resulted affected its earnings at both upstream and downstream segments), but partly mitigated by higher property earnings and lower finance cost.

YoY. 3Q19 core net profit declined by 39.4% to RM14.7m (from RM24.3m in 3Q18), as a 7.9% increase in FFB output and improved contribution from premium outlets were more than negated by lower palm product prices (CPO: -3.7%; PK: -32.8%) and lower property earnings.

YTD. 9M19 core net profit plunged 42.2% to RM77.5m, dragged mainly by lower palm product prices (CPO: -12.2%; PK: -35.9%) and lower property earnings. These were however, partly mitigated by a 9.8% increase in FFB output, and improved earnings contribution from downstream segment and premium outlets.

FFB production. FFB production rose 9.8% to 1.6m tonnes in 9M19, due mainly to young age profile in Indonesian estates. Despite having anticipated FFB production to increase further in 4Q, management guided a lower FFB production growth of midhigh single digit for FY19 (from 10-15% previously), due to dry weather condition experienced earlier this year.

Downstream performance. We understand that utilisation at biodiesel plant will remain high until 1Q20, due to exports demand (for discretionary blending) locked in prior to CPO price surge.

Forecast. Maintain, as we deem the results within our full-year estimate.

Maintain BUY, TP: RM11.80. We raise our sum-of-parts TP by 5.5% to RM11.80 (see Figure #2), as we roll forward our valuation base year for plantation segment to FY21 (from FY20 previously). We continue to like GENP for its young age profile (11.5 years), high earnings sensitivity to CPO price movement (every RM100/tonne change in CPO price a result in RM50m p.a. change in its PBT in FY20, based on management’s guidance), and healthy balance sheet. Maintain BUY rating.

Source: Hong Leong Investment Bank Research - 4 Dec 2019