GENP’s 9M17 core net profit of RM232.6m (+53.8% yoy) came in below our previous and consensus 2017 expectations. The variance was mainly due to lower-than-expected contribution from the upstream plantation and property divisions. As such, we have cut our 2017-19 core EPS forecasts by 9-13% to account for the weak 9M17 results, and lowered our TP to RM10.75. Given the limited upside of 2.6% to our new 12-month TP, we downgrade the stock to a HOLD.

9M17 Core Net Profit More Increased by 53.8% Yoy to RM232.6m

Genting Plantations’ (GENP) 9M17 revenue was higher by 32% yoy to RM1.3bn, mainly attributable to 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 RM2,770/MT (9M16: RM2,517/MT) and RM2,404/MT (9M16: RM2,316/MT), respectively, while FFB production increased by 24.6% yoy to 1.35m MT. PBT for 9M17 increased by 67.7% yoy to RM319m. After adjusting for one-off items, 9M17 core net profit increased by 53.8% yoy to RM232.6m, accounting for 63% and 69% of our previous and consensus 2017 forecasts respectively. Despite the strong yoy improvement, this came in below our expectation mainly due to lower-than-expected contribution from the upstream plantation and property divisions.

TP Lowered to RM10.75, Downgrade to HOLD

We cut our 2017-19E core EPS by 9-13%, mainly to account for the weak 9M17 results. As such, our 12-month target price for GENP has been reduced to RM10.75 (from RM12.00 previously), based on an unchanged 2018E PER of 22x. We downgrade GENP to a HOLD rating (from BUY previously) given the limited upside to our new TP.

Key Risks

Key upside/downside risks include: 1) stronger/weaker economic growth leading to a higher/lower consumption of vegetable oils; 2) a sustained rebound/plunge in the CPO price; 3) higher/lower-than-expected FFB and CPO production; and 4) changes in policies.

Source: Affin Hwang Research - 23 Nov 2017