1H22 core net profit of RM313.8m (+82.7%) beat our expectation, accounting for 64.6% of our full-year estimate, due mainly to better-than-expected performance at property and downstream segments. Against the consensus, the results accounted for 50.6% of consensus full-year estimate (inline). We raise our FY22- 24 core net profit forecasts by 5.2%, 6.0% and 3.4%, respectively, mainly to account for higher JV contribution and manufacturing margin assumptions. Post earnings adjustments, we maintain our BUY rating on GENP with a higher sum - of-parts derived TP of RM7.75 (from RM7.66 earlier).

Beat our expectation. 2Q22 core net profit of RM218.2m (2.3x QoQ; +92.1% YoY) took 1H22 total sum to RM313.8m (+82.7%). The results beat our expectation, accounting for 64.6% of our full-year estimate, due mainly to better-than-expected JV contribution and downstream segment performance. Against the consensus, the results were inline, accounting for 50.6% of full-year estimate.

Exceptional items (EIs) in 1H22. Core net profit of RM313.8m in 1H22 was arrived after adjusting for (i) RM0.8m write-off, (ii) RM0.4m write-down, (iii) RM0.8m disposal gain, and (iv) RM9.6m forex gain.

QoQ. Core net profit more than doubled to RM218.2m in 2Q22 (from RM95.6m in 1Q22), as contribution from all key segments improved significantly. During the quarter, adjusted EBITDA at (i) plantation segment increased by 47.7% (boosted mainly by higher CPO price realised and FFB output), and (ii) downstream segment surged 6.4x to RM23.6m (due to margin expansion).

YoY. Core net profit surged by 92.1% to RM218.2m in 2Q22, boosted by sharply higher palm product realised prices and improved JV contribution, but partly mitigated by a 7.5% decline in FFB output and higher CPO production cost at plantation segment.

YTD. Core net profit surged by 82.47% to RM313.8m in 1H22, boosted mainly sharply higher palm product realised prices (CPO: +56.5%; PK: +62.7%), significantly higher contribution from downstream segment (arising from improved margin) and JV, but partly moderated by higher CPO production cost and lower FFB output (-4.5%).

3-5% FFB output growth in FY22. Despite a 4.5% decline in FFB output during 1H22, management expects FFB output to catch up in 2H (which will in turn result in FFB output growing by 3-5% in FY22), due mainly to seasonality effect.

CPO production cost to remain stable in 2H22 (vs. 1H22). GENP achieved blended CPO production cost of RM2,190/mt during 1H22 (17% higher than 1H21), due to higher labour, fertiliser and fuel costs. For FY22, management expects CPO production cost to hover between RM2,100/mt and RM2,300/mt (depending on its application progress) in FY22, as further increase in fertiliser costs in 2H22 (due to higher prices and application) will be mitigated by higher FFB output.

Forecast. We raise our FY22-24 core net profit forecasts by 5.2%, 6.0% and 3.4%, respectively, mainly to account for higher JV contribution and manufacturing margin assumptions.

Maintain BUY with higher TP of RM7.75. Post earnings adjustments, we maintain our BUY rating on GENP with a higher sum-of-parts derived TP of RM7.75 (from RM7.66 earlier).

Source: Hong Leong Investment Bank Research - 25 Aug 2022