2Q20 core net profit of RM12.3m (QoQ: -83.4%; YoY: -21.5%) took 1H20 core net profit to RM86.5m (+37.7%). The results beat our estimate, as we anticipate 2H to come in stronger, on the back of higher FFB output and recovery in earnings contribution from premium outlets. We raise our FY20-22 core net profit forecasts by 13.9%, 11.3% and 9.7%, respectively, mainly to account for slightly higher FFB output and lower finance cost assumptions. Correspondingly, we maintain our HOLD rating on GENP with a higher SOP-derived TP of RM9.60.

Above our expectation. 2Q20 core net profit of RM12.3m (QoQ: -83.4%; YoY: -21.5%) took 1H20 core net profit to RM86.5m (+37.7%). The results accounted for 39.8-50.5% of consensus and our full-year estimates. We consider the results above our expectation, as we expect 2H to come in stronger, on the back of higher FFB output and recovery in earnings contribution from premium outlets.

Dividend. Declared interim DPS of 6 sen (going ex on 9 Sep 2020). For the full year, we are projecting a total DPS of 12 sen (translating to a dividend yield of 1.2%).

QoQ. Core net profit plunged by 73.9% to RM12.3m in 2Q20, as higher FFB output (+11.4%) was more than negated by lower palm product prices, decline in biodiesel sales and weaker earnings contribution from premium outlets.

YoY. Despite the improved palm product prices, 2Q20 core net profit fell 21.5% to RM12.3m, as higher palm product prices were more than negated by a 2.9% decline in FFB output, weaker downstream performance, and lower earnings contribution from premium outlets.

YTD. 1H20 core net profit increased by 37.7% to RM86.5m, boosted mainly by higher palm product prices and higher property earnings, which more than compensated weaker earnings at downstream segment and lower earnings contribution from premium outlets.

FFB output guided to remain flattish in 2020. FFB output declined by 11.2% to 949k mt in 1H20, due mainly to lagged effect of dry weather condition in 2019. While management expects 2H to come in stronger than 1H (on the back of yield recovery), full-year FFB output will likely come in flat vis-à-vis FY19’s FFB output of circa 2.2m mt.

Premium outlets’ footfall improving. We understand footfall in GENP’s 2 premium outlets (namely Johor Premium Outlet and Genting Highland Premium Outlet) has been improving, and management expect footfall in these 2 outlets to soon recover back to pre-Covid level.

Forecast. We raise our FY20-22 core net profit forecasts by 13.9%, 11.3% and 9.7%, respectively, mainly to account for slightly higher FFB output and lower finance cost assumptions. We note that our forecasts are based on average CPO price projections of RM2,350/mt for 2020, and RM2,400/mt for 2021-2022.

Maintain HOLD; TP: RM9.60. Post upward revisions to our core net profit forecasts, we maintain our HOLD rating on GENP with a higher SOP-derived TP of RM9.60 (from RM9.02 earlier)

Source: Hong Leong Investment Bank Research - 27 Aug 2020