9M20 core net profit of RM154.4m (+99.2%) beat our expectation, accounting for 79.2% of our full-year estimate, due mainly to higher-than-expected realised palm product prices. During the briefing, management shared that (i) FFB output will decline marginally in FY20 (by <5%), before growing by 5-8% in FY21, and (ii) decent performance at downstream segment may not be sustained into 4Q20. We raise our FY20 core net profit forecast by 14.2% to RM222.8m, but maintain our FY21-22 core net profit forecasts. We maintain our FY21-22 core net profit forecasts for now, pending a review in our average CPO price assumptions post results season. Maintain HOLD rating, with an unchanged SOP-derived TP of RM9.60 for now.

Beat our expectation. 3Q20 core net profit of RM67.9m (QoQ: +452.4%; YoY: +361.6%) took 9M20 core net profit to RM154.4m (+99.2%). The results beat our expectation, accounting for 79.2% of our full-year estimate, due mainly to higher-thanexpected realised palm product prices. Against the consensus, the results accounted for 65.9% of consensus full-year estimate.

Exceptional items (EIs). The core net profit of RM154.4m in 9M was derived after adjusting for (i) RM18.3m net disposal gain, and (ii) RM0.6m PPE written off, and (iii) RM3.2m forex gain.

QoQ. Core net profit surged 4.5x to RM67.9m in 3Q20 (from RM12.3m in previous quarter), boosted mainly by higher FFB output and realised palm product prices at plantation segment, higher sales volume from refinery, and earnings recovery from premium outlets.

YoY. Core net profit surged 3.6x to RM67.9m in 3Q20 (from RM14.7m in 3Q19), as lower FFB output, lower property earnings, and weaker contribution from premium outlets were more than mitigated by significantly higher realised palm product prices, and improved downstream performance.

YTD. 9M20 core net profit doubled to RM154.4m (from RM77.5m SPLY), as lower FFB output, downstream and premium outlet earnings were more than mitigated by significantly higher realised palm product prices.

FY20 FFB output guidance lowered. GENP clocked in a 7% decline in FFB output in 10M20. Despite having anticipated FFB output from Indonesia operations to inch up further in Nov-20, management expects FFB output decline marginally (<5%) from FY19’s FFB output of 2.2m mt (given the weaker-than-expected FFB output clocked in so far). Moving to FY21, management guided FFB output growth of 5-8%, which will be driven by Indonesia operations (with an additional 2,000 ha graduating into mature bracket). FFB output growth in Malaysia, on the other hand will remain muted, as management has earmarked 4,000 ha for replanting.

Downstream performance may not sustain into 4Q20. The decent earnings contribution at GENP’s downstream segment in 3Q20 will unlikely be sustained into 4Q20, as stable refinery performance (if utilisation rate is a guide) will be offset by weaker demand for biodiesel products.

Forecast. We raise our FY20 core net profit forecast by 14.2% to RM222.8m, mainly to account for higher realised palm product prices YTD. We maintain our FY21-22 core net profit forecasts for now, pending a review in our average CPO price assumptions post results season. Based on our estimates, every RM100/mt change in our average CPO price assumptions will result in our FY21-22 core net profit changing by ~15%.

Maintain HOLD; TP: RM9.60. Maintain HOLD rating, with an unchanged SOPderived TP of RM9.60 (see Figure #2) for now. There is an upside bias to our TP, pending a post results season review on our average CPO price assumption.

Source: Hong Leong Investment Bank Research - 26 Nov 2020