Genting Plantation’s (GENP) 1H18 core net profit of RM126m (-18% yoy) came in within our and consensus expectations. Profit was lower from the upstream plantation and property divisions but partially offset by higher profit from the downstream division. We made no changes to our 2018-20E core EPS forecasts post the 1H18 results. We maintain our BUY call on GENP with an unchanged RM10.98 TP.

1H18 Results Largely Within Expectations

Genting Plantations (GENP) reported higher 1H18 revenue by 10.1% yoy to RM931.7m. This was mainly attributable to higher offtake for refinery products from the downstream segment and higher property sales, but partially offset by the weaker contribution from its upstream plantation segment. The blended CPO and PK ASPs for 1H18 were lower yoy at RM2,336/MT (1H17: RM2,861/MT) and RM1,908/MT (1H17: RM2,513/MT), respectively, while GENP’s FFB production increased by 12% yoy to 965k MT. However, PBT for 1H18 declined by 20.3% yoy to RM167.8m due to lower profit from the upstream plantation and property divisions, but partially offset by higher profit from the downstream division. After adjusting for one-off items, which include forex gains and gains from the acquisition of land by the government, 1H18 core net profit declined by 17.8% yoy to RM125.7m, accounting for 40% and 37% of our and consensus 2018 forecasts, respectively. We deem this to be in line with our expectations as we expect a stronger 2H18 underpinned by higher production with a lower cost of production.

Weaker Sequentially as Expected

On a sequential basis, GENP’s 2Q18 revenue was lower at RM402.6m (-23.9% qoq) while PBT plunged by 71.5% qoq to RM37.2m. This was mainly due to the lower contribution from the upstream plantation division given the decline in CPO prices and lower FFB production. GENP’s 2Q18 core net profit declined by 49.9% qoq to RM36.7m. GENP has declared an interim DPS of 4.75 sen (1H17: 5.5 sen).

Maintain BUY With TP of RM10.98

We leave our 2018-20E core EPS unchanged post the 1H18 results. We expect higher FFB and CPO production as well as an increase in the contribution from the downstream plantation segment to drive future earnings growth. We keep our target price for GENP at RM10.98, using an unchanged 22x PER on 2019E EPS. Maintain our BUY rating on the stock.

Key Risks

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

Source: Affin Hwang Research - 29 Aug 2018