9M21 core net profit of RM270.1m (+74.9%) beat our expectation, accounting for 77.4% of our full-year estimate, due to better-than-expected realised palm product prices. We raise our FY21-22 core net profit forecasts by 7.5% and 17.3%, while leaving our FY23 forecast largely unchanged, after imputing higher CPO price and fertiliser cost assumptions. Following the upward revision in our core net profit forecasts and roll-forward of valuation base year (from FY22 to FY23), we maintain our BUY rating on GENP with a higher sum-of-parts TP of RM8.89.

Beat expectations. 3Q21 core net profit of RM98.3m (QoQ: -13.5%; YoY: +74.9%) took 9M21 sum to RM270.1m (+74.9%). The results exceeded our expectation, accounting for 77.4% of our full-year estimate, due to better-than-expected realised palm product prices. Against consensus, the results came in within, accounting for 69.7% of consensus full-year estimate.

Exceptional items (EIs) in 9M21. Core net profit of RM270.1m was arrived after adjusting for (i) RM31m impairment losses (arising from the delay in methathesis plant), (ii) RM0.2m fair value loss on financial assets, (iii) RM13.7m deferred income recognised for government grant (related to the delay in methathesis plant), (iv) RM2.6m forex gain, and (v) RM0.1m writeback on land held for property development.

QoQ. Core net profit declined by 13.5% to RM98.3m in 3Q21, as higher realised average CPO price was more than negated by lower FFB output and realised average PK price at upstream plantation segment, and lower earnings contribution from downstream and property segments.

YoY. Core net profit surged 44.7% to RM98.3m in 3Q21, boosted mainly by significantly higher realised palm product prices, but partly moderated by lower contribution from property segment and JVs (as the implementation of interstate travel restriction impacted footfalls at its premium outlets).

YTD. 9M21 core net profit surged 74.9% to RM270.1m, boosted mainly by significantly higher realised palm product prices and a marginal increase in FFB output (+1%), but partly moderated by lower JV contribution.

FFB output guidance. FFB output growth will likely turn out to be flattish in FY21 (vs. its previous guidance of 3-5%), due to less favourable weather conditions (which has in turn disrupted harvesting and transportation of FFB in its Indonesia operations). Moving into FY22, management guided an output growth of 5-8%, which will be driven mainly by favourable age profile in its Indonesia operations.

Higher production cost in FY22. Management shared that CPO production cost will likely increase by 10-15% in FY22, due to higher fertiliser prices.

Footfall in premium outlets recovered to pre-Covid level. Management shared that footfall at its 2 premium outlets (JPO and GHPO) has recently recovered back to pre - Covid level following the uplift of interstate travel restriction.

Muted impact from Budget 2022 tax measures. Management shared that the proposed Prosperity Tax and tax on foreign-sourced income (in Budget 2022) will not have material impact on GENP. On the other hand, the revision in windfall levy thresholds and tax rate will result in some windfall tax savings.

Forecast. We raise our FY21-22 core net profit forecasts by 7.5% and 17.3%, while leaving our FY23 forecast largely unchanged, after imputing higher CPO price and fertiliser cost assumptions.

Maintain BUY, with slightly higher TP of RM8.89. Following the upward revision in our core net profit forecasts and roll-forward of valuation base year (from FY22 to FY23), We maintain our BUY rating on GENP with a higher sum-of-parts TP of RM8.89 (from RM8.74 previously).

Source: Hong Leong Investment Bank Research - 25 Nov 2021