Higher CPO prices boosted earnings

9M16 core net profit of RM168m was above our expectation but within consensus. We increase our 2016 earnings forecast by 14.4% after adjusting for higher CPO ASP assumption of RM2,550/MT but offset by higher blended cost of production of RM1,550/MT. No changes made to our 2017-18 earnings forecasts. Maintain TP at RM9.56 and SELL call on GENP due to its high valuation.

9M16 core net profit was 15% higher yoy

GENP reported a slightly higher 9M16 revenue by 1.7% yoy to RM966.7m, mainly due to higher contribution from upstream plantation and downstream manufacturing divisions but partially offset by lower property sales. CPO and PK ASP were higher at RM2,517/MT (9M15: RM2,142/MT) and RM2,316/MT (9M15: RM1,542/MT), respectively. 9M16 core net profit of RM167.9m, an increase of 14.8% yoy, came in above our expectation but within consensus, accounting for 82.6% and 70.9% of our previous 2016E and street’s forecasts respectively. The variance was mainly due to higher-than-expected contribution from the plantation division.

Core net profit in 3Q16 more than doubled qoq to RM97.3m

Sequentially, GENP’s 3Q16 revenue and core net profit increased by 28.3% and 159.9% qoq, respectively. This was mainly due to higher profit from plantation and property divisions as well as lower biotechnology division loss. CPO and PK ASP were higher at RM2,617/MT (2Q16: RM2,588/MT) and RM2,628/MT (2Q16: RM2,344/MT), respectively. EBITDA margin improved to 38.6% in 3Q16 from 25.2% in 2Q16.

Raising 2016E earnings by 14% but maintain 2017-18 forecasts

Given the stronger-than-expected 9M16 performance, we have increased our 2016 core EPS forecast by 14.4% after adjusting for higher CPO ASP assumptions of RM2,550/MT (from RM2,400/MT) but partially offset by higher blended cost of production of RM1,550/MT (from RM1,500/MT). We make no changes to our 2017-18 forecasts, maintain CPO ASP assumption at RM2,400/MT.

Maintain TP at RM9.56 and SELL rating

As such, our target price for GENP is maintained at RM9.56, based on an unchanged PER target of 19x on 2017E EPS. Rating for the stock is reaffirmed at SELL due to its high valuation. Key upside risks to our SELL rating include: (i) higher vegetable oil and crude oil prices; and (ii) favourable changes in policies.

Source: Affin Hwang Research - 24 Nov 2016