FY21 core net profit of RM436.3m (+81.1%) beat expectations, exceeding consensus and our estimates by 10.3-16.4%, due mainly to higher-than-expected realised palm product prices and better-than-expected performance at downstream segment. Recommended final DPS of 4 sen and declared special DPS of 15 sen (going ex on 10 Mar 2022), bringing total DPS for FY21 to 30 sen. We raise our FY22-24 core net profit forecasts by 43.7%, 17.6% and 19.9%, respectively, mainly to account for higher CPO price (RM4,300/mt for FY22, and RM3,300/mt for FY23-24) and marginally higher production cost assumptions at plantation segment, and higher EBIT margin assumption at downstream segment. Post earnings revision, we maintain our BUY rating on GENP with a higher sum-of-parts TP of RM9.69 (from RM8.89 earlier).

Beat expectations. 4Q21 core net profit of RM166.2m (QoQ: +69.1%; YoY: +92.1%) took FY21 sum to RM436.3m (+81.1%). The results beat expectations, exceeding consensus and our estimates by 10.3-16.4%, due mainly to higher-than-expected realised palm product prices and better-than-expected performance at downstream segment.

Exceptional items (EIs) in FY21. Core net profit of RM436.3m in FY21 was arrived after adjusting for (i) RM1.6m PPE written off, (ii) RM31.0m impairment losses (arising from the delay in methathesis plant), (iii) RM0.2m fair value loss on financial assets, (iv) RM13.7m deferred income recognised for government grant (related to the delay in methathesis plant, (v) RM2.0m forex gain, (vi) RM0.3m reversal of write-down on land held for property development, and (vii) RM0.1m reversal of impairment losses on receivables.

Dividend. Recommended final DPS of 4 sen and declared special DPS of 15 sen (going ex on 10 Mar 2022), bringing total DPS for FY21 to 30 sen, translating to payout ratio of 37% and dividend yield of 3.6%.

QoQ. Core net profit surged by 69.1% to RM166.2m in 4Q21, as the 2.3% decline in FFB output was more than mitigated by higher realised palm product prices (CPO: +14.4%; PK: +53.8%), and improved contributions from downstream and property segments, but partly weighed down by a 2.3% decline in FFB output.

YoY. Core net profit surged by 92.1% to RM166.2m, boosted mainly by significantly higher realised palm product prices (CPO: +54.8%; PK: +97.2%), improved property and downstream earnings, but partly moderated by a 13.7% decline in FFB output.

YTD. Core net profit surged by 81.1% to RM436.3m in FY21, due to the same reasons mentioned above. During FY21, realised palm product prices surged by 37.2-70.5%, while FFB output declined by 3.2% to 2.02m tonnes.

FFB output guidance. Management maintain its FY22 FFB output growth guidance of 5-8% in FY22, which will be driven mainly by favourable age profile in its Indonesia operations.

Higher fertiliser cost in FY22, but production cost will remain flattish. GENP has recently tendered its 1H22 fertiliser requirement, at significantly higher prices. Despite the anticipated surge in fertiliser cost, CPO production cost will remain flattish in FY22, as it still has fertiliser inventory carryover from FY21 (as GENP did not complete its fertiliser application programme in FY21 due to less favourable weather condition) and management’s plan to manage its fertiliser requirement.

Forecast. We raise our FY22-24 core net profit forecasts by 43.7%, 17.6% and 19.9%, respectively, mainly to account for higher CPO price (RM4,300/mt for FY22, and RM3,300/mt for FY23-24) and marginally higher production cost assumptions at plantation segment, and higher EBIT margin assumption at downstream segment.

Maintain BUY with higher TP of RM9.69. Post earnings revision, we maintain our BUY rating on GENP with a higher sum-of-parts TP of RM9.69 (from RM8.89 earlier).

Source: Hong Leong Investment Bank Research - 24 Feb 2022