GENP’s 2018 core net profit of RM159.2m (-52.3% yoy) accounted for 93% and 74% of our and the consensus full-year forecasts, respectively. Upstream plantation and downstream manufacturing profits were lower yoy, while profit from the property division increased. We cut our 2019-20 core EPS forecasts by 5-12%, mainly to take into account the higher operating expenditure. However, we now apply a higher target PER of 35x (based on a 10% premium to the Malaysian plantation sector’s 2019E average PER of 32x) on our 2019E core EPS, and raise our 12-month TP slightly to RM9.80. We believe the higher PER target is appropriate, taking into account its size, status and trading liquidity. We maintain our HOLD rating.

2018 Results Slightly Below Expectations

Genting Plantations (GENP) reported a 2018 revenue of RM1.9bn, up 5.5% yoy, mainly attributable to the higher offtake from the downstream manufacturing segment and higher progressive completion of works by the property segment, partially offset by weaker contribution from its upstream plantation segment. The blended CPO and PK ASPs for 2018 were lower yoy at RM2,117/MT (2017: RM2,715/MT) and RM1,681/MT (2017: RM2,443/MT), respectively, while GENP’s FFB production increased by 10.6% yoy to 2.1m MT. However, PBT for 2018 declined by 54.6% yoy to RM207.7m due to lower profit from the upstream plantation and downstream manufacturing divisions, but this was partially offset by higher profit contribution from the property division. After adjusting for one-off items, which include a forex loss and a gain from the acquisition of land by the government, 2018 core net profit declined by 52.3% yoy to RM159.2m, accounting for 93% and 74% of our and the consensus full-year forecasts, respectively. This is slightly below our expectation mainly due to a weaker margin, especially from the upstream plantation division. GENP declared a final DPS of 8.25 sen, bringing the 2018 DPS to 13 sen (2017: 26 sen).

Flat Core Net Profit Sequentially

Sequentially, GENP’s 4Q18 revenue was lower at RM482.3m (-1.3% qoq) due to lower contribution from the property and downstream manufacturing divisions that was partially offset by higher revenue from the upstream plantation. The CPO ASP was lower by 9.5% qoq to RM1,848/MT, but FFB production surged by 21% qoq to 613k MT. GENP’s 4Q18 core net profit, after excluding one-off items, was flat at RM25m vs. RM24.3m in 3Q18.

Source: Affin Hwang Research - 27 Feb 2019