Upgrading: Higher Production Boosts Earnings

GENP’s 1Q18 core net profit of RM73.2m (-4.3% yoy) came in within our and consensus expectations. Hence, we made no changes to our 2018-20 core EPS forecasts post the 1Q18 results. On likely higher FFB and CPO production and increased contribution from the downstream plantation segment driving earnings growth over 2018- 20, we raise our TP to RM11.90 and upgrade GENP to BUY, from Hold.

1Q18 Results Within Expectations

Genting Plantations (GENP) reported a 1Q18 revenue of RM529.1m (+32.2% yoy), mainly attributable to a higher offtake from its refinery and higher progressive completion of its property projects, but this was partially offset by weaker contribution from its upstream plantation segment. The blended CPO and PK ASPs for 1Q18 were lower yoy at RM2,375/MT (1Q17: RM3,053/MT) and RM2,083/MT (1Q17: RM3,097/MT), respectively, while GENP’s FFB production increased by 19.6% yoy to 485.5k MT. PBT for 1Q18 increased by 21.7% yoy to RM130.6m. However after adjusting for one-off items, which include the forex gain and gain from the acquisition of land by the government, 1Q18 core net profit declined by 4.3% yoy to RM73.2m, accounting for 19% and 20% of our and consensus 2018 forecasts, respectively. We deem this to be in line with our expectations as we expect stronger quarters ahead.

Weaker Sequentially

On a sequential basis, GENP’s 1Q18 revenue was flat (+0.1% qoq) at RM529.1m, but PBT was weaker by 8.1% qoq on the back of lower contribution from all segments, with the exception of the Indonesianplantation segment. GENP’s 1Q18 core net profit declined by 29.3% qoq to RM73.2m.

Upgrading to BUY With a New TP of RM11.90

We leave our 2018-20E core EPS unchanged post the 1Q18 results. We expect higher FFB and CPO production as well as an increase in contribution from the downstream plantation segment to drive earnings growth over 2018-20E. Hence, we raise our 12-month target price for GENP to RM11.90 (from RM10.75), based on an unchanged 22x PER on our 2019E EPS (rolled forward from 2018E). Given the 25% upside potential to our new target price, we upgrade GENP to BUY from Hold.

Source: Affin Hwang Research - 24 May 2018