We consider 1Q22 core net profit of RM95.6m (-42.5% QoQ; +64.3% YoY, which accounted for 20.2% of our full-year estimate) within our expectation. Against the consensus, the results came in below, accounting for only 18.1% of full-year estimate. We raise our FY22-24 core net profit forecasts by 2.8%/13.6%/1.9%, mainly to account for higher CPO price assumptions and CPO production cost assumptions at upstream plantation segment, and lower property and downstream earnings assumptions. Post earnings revision and recalibration of earnings model, we maintain our BUY rating on GENP with a higher sum-of-parts TP of RM9.78 (from RM9.69 previously).

Within our expectation;below consensus. 1Q22 core net profit of RM95.6m (-42.5% QoQ; +64.3% YoY) accounted for 20.2% of our full-year estimate. We consider the results broadly within our expectation, as weaker-than-expected performance at downstream and property segments were offset by higher-than-expected realised palm product prices. Against the consensus, the results came in below, accounting for only 18.1% of full-year estimate.

Exceptional items (EIs) in 1Q22. Core net profit of RM95.6m was arrived after adjusting for (i) RM19.8m fair value gain on biological assets, (ii) RM0.8m write-down and write-off, and (iii) RM2.0m forex gain.

QoQ. 1Q22 core net profit fell by 42.5% to RM95.6m, as higher realised palm product prices were more than weighed down by seasonally weaker FFB output (-15.3%), and lower earnings contribution from property and downstream segments.

YoY. 1Q22 core net profit surged by 64.3% to RM95.6m, boosted mainly by sharply higher realised palm product prices and improved downstream performance, but partly moderated by higher CPO production cost and lower property earnings.

FFB guidance. FFB output declined marginally (by 0.9% to 437k tonnes) in 1Q22, due mainly to labour shortage and replanting activities in Malaysia. Given the weak FFB output achieved in 1Q22, management shared that it would likely achieve FFB output growth of 5% for FY22 (at lower end of 5-8% range guided in previous quarter).

Higher fertiliser prices and minimum wage hike in Malaysia to drive FY22 CPO production cost higher. Management shared that it has recently tendered out its fertiliser requirement for 1H22, which cost on average, have surged 150% from previous year. Higher fertiliser prices, coupled with minimum wage hike in Malaysia (which will take effect from May-22) will bring GENP’s blended CPO production cost in FY22 to ~RM2,200/mt (from ~RM1,900/mt in FY21).

Forecast. We raise our FY22-24 core net profit forecasts by 2.8%/13.6%/1.9%, mainly to account for (i) higher CPO price assumptions (RM5,500/4,500/4,500 per tonne in FY22-24 following our recent upward revision in CPO price assumptions for the sector) but partially offset by (ii) higher CPO production cost assumptions at upstream plantation segment, and (iii) lower property and downstream earnings assumptions.

Maintain BUY with higher TP of RM9.78. Post earnings revision and recalibration of earnings model, we maintain our BUY rating on GENP with a higher sum-of-parts TP of RM9.78 (from RM9.69 previously).

Source: Hong Leong Investment Bank Research - 26 May 2022