Genting Plantations’ (GENP) 1Q19 core net profit of RM47.2m (-35.6% yoy) came in below expectations. Higher profit from the downstream manufacturing division was negated by lower plantation (due to weaker CPO and PK prices) and property earnings. We cut our 2019- 21E core EPS forecasts by 1-18%, mainly to take into account a lower CPO price assumption. We have changed our valuation method to DCF, with a revised TP of RM10.00 (from RM9.80), and maintain our HOLD rating. We believe GENP’s current valuation is fair, taking into account its size, status and trading liquidity.

Downstream Revenue – Driven by Biodiesel and Refined Palm Products

Genting Plantations (GENP) reported a 1Q19 revenue of RM621.7m, up 17.5% yoy, mainly attributable to the higher offtake from the downstream manufacturing segment (especially biodiesel and refined palm products) but partially offset by weaker contributions from its upstream plantation and property segments. The blended CPO and PK ASPs for 1Q19 were 16.9% yoy and 38.4% yoy lower at RM1,974/MT (1Q18: RM2,375/MT) and RM1,283/MT (1Q18: RM2,083/MT), respectively, while GENP’s FFB production increased by 14.2% yoy to 554.5k MT. Palm-product selling prices in 1Q19 were under pressure partly due to the ample supply of other edible oils in the market, weak market sentiment and the ongoing trade tensions between the US and China. However, PBT for 1Q19 declined by 54.1% yoy to RM59.9m due to lower profits from the upstream plantation and property divisions. This was partially offset by a higher profit contribution from the downstream manufacturing division.

1Q19 Results Below Expectations

After adjusting for one-off items, GENP’s 1Q19 core net profit declined by 35.6% yoy to RM47.2m, accounting for 21% and 17% of our and the consensus 2019 forecast, respectively. This is below our expectation mainly due to a weaker margin, especially from the upstream plantation division.

Source: Affin Hwang Research - 24 May 2019