GENP’s 2019 core net profit of RM140.2m (-11.9% yoy) came in above our expectations. Higher profits from the downstream manufacturing and property divisions were negated by lower plantation earnings. We expect GENP’s earnings to increase in 2020-21E on the back of higher CPO prices and production. We make no major changes to our 2020- 21E core earnings forecasts and our CPO assumptions remain at RM2,500-2,600/MT. We maintain our HOLD rating on GENP with an unchanged DCF-derived target price of RM10.95.

Higher 2019 Revenue Due to Downstream Manufacturing Division

Genting Plantations’ (GENP) revenue for 2019 was higher at RM2.3bn, up 19.1% yoy, mainly attributable to the higher sales volume at the downstream manufacturing (especially biodiesel and refined palm products) but partially dragged by a weaker contribution from its upstream plantation (lower CPO average selling prices, which outweighed the growth in FFB production) and property divisions. For 2019, GENP’s CPO and PK ASPs were lower by 3.2% and 30% yoy at RM2,048/MT (2018: RM2,117/MT) and RM1,179/MT (2018: RM1,681/MT), respectively, while GENP’s FFB production increased by 5.3% yoy to 2.2m MT. CPO prices rallied in 4Q19, driven by the decline in inventory levels from the tightening of supplies; however, the late rally was not sufficient to offset the weaker prices in the first nine months of 2019. GENP’s EBITDA margin declined to 17.9% (-3.3ppt) in 2019, mainly due to the weaker margin from the upstream plantation division.

2019 Core Net Profit at RM140.2m Above Expectations

GENP’s PBT for 2019 declined by 10.7% yoy to RM185.5m. The lower profit from the upstream plantation division was partially offset by a higher profit contribution from the downstream manufacturing and property divisions. After adjusting for one-off items, GENP’s 2019 core net profit declined by 11.9% yoy to RM140.2m, but accounted for 116% and 99% of our and consensus 2019 core earnings, respectively. This was mainly due to the higher-than-expected contribution from the upstream plantation division. Also, GENP declared a DPS of 9.5 sen, bringing its 2019 total DPS to 13 sen as expected (2018: 13 sen).

Source: Affin Hwang Research - 27 Feb 2020