GENP’s 1H17 core net profit of RM153.6m (>100% yoy) was below our expectations. The variance was mainly due to a lower-than-expected margin from the plantation division. We cut our 2017-19E EPS by 10- 11% to account for the weaker margin, which leads us to lower our TP to RM12.00. Maintain BUY.

1H17 Core Net Profit More Than Doubled to RM153.6m

Genting Plantations (GENP) reported a higher 1H17 revenue of RM846.5m, up 48.5% yoy, mainly because of higher contribution from the upstream plantation and downstream manufacturing divisions, but partially offset by lower property sales. The blended CPO and PK ASPs were higher yoy at RM2,861/MT (1H16: RM2,444/MT) and RM2,513/MT (1H16: RM2,108/MT), respectively, while FFB production increased by 34% yoy to 862k MT. PBT for 1H17 more than tripled yoy to RM210.8m. After adjusting for one-off items, 1H17 core net profit more than doubled yoy to RM153.6m, accounting for 37% and 41% of our previous and consensus 2017E forecast respectively. Despite the strong yoy improvement, this came in below our expectation mainly due to a lower-than-expected margin from the plantation division. GENP declared a DPS of 5.5 sen (1H16: 2 sen).

Slightly Higher Core Net Profit Sequentially

Sequentially, 2Q17 revenue was higher by 11.5% qoq to RM446.2m, attributable to increase in revenue contribution from the property and downstream manufacturing divisions but partially offset by the decline in upstream plantation division. After adjusting for one-off items, 2Q17 core net profit increased slightly by 1.3% qoq to RM77.3m.

Maintain BUY But With a Lower TP of RM12.00

We cut our 2017-19E core EPS by 10-11%, mainly to take into account the weaker-than-expected 1H17 results given the weaker margins in the plantation division. As such, our 12-month target price for GENP has been reduced to RM12.00 (from RM13.35 previously), based on an unchanged 2018E PER of 22x. We still like GENP as we expect a rising matured plantation area, and higher FFB and CPO production to drive growth. With the 13.4% upside potential to our new TP, we maintain our BUY rating on GENP. Key risks to our BUY rating include: 1) a weaker-than-expected recovery in the global economy; 2) lower vegetable oil and crude oil prices; 3) weaker-than-expected FFB and CPO production; and 4) adverse changes in policies.

Source: Affin Hwang Research - 24 Aug 2017