• GENP’s 6M20 core net profit of RM86.5 (+37.7% yoy) came in below our expectation. The variance was mainly due to lower-than-expected contribution from the plantation division.
•  We cut our 2020 core earnings forecast by 6.8% to take into account the lower- than-expected profit from the upstream plantation division, while maintaining our 2021-22E earnings forecasts.
•  Maintain HOLD rating on GENP with an unchanged DCF-derived TP of RM10.80

6M20 Core Net Profit at RM86.5m – Below Expectations

Genting Plantations’ (GENP) 6M20 revenue was lower at RM1.1bn, down 3% yoy. This was mainly attributable to the lower contribution from the downstream manufacturing (softer demand for biodiesel and refined palm products) and property divisions (lower property sales) but partially offset by higher revenue from its upstream plantation division (higher palm product prices). For 6M20, GENP’s CPO and PK ASPs were higher by 25.8% and 20.5% yoy at RM2,465/MT (6M19: RM1,960/MT) and RM1,439/MT (6M19: RM1,194/MT), respectively, although GENP’s FFB production declined by 11.2% yoy to 949.5k MT (attributable to the lagged effect of adverse weather conditions in 2019 and Movement Control Order). GENP’s EBITDA margin increased to 18.7% (+1.4ppt) in 6M20, mainly due to better margins from the upstream plantation division. GENP’s PBT increased by 50.8% yoy to RM129.5m due to higher profits from the upstream plantation and property divisions. After adjusting for one-off items, the 6M20 core net profit was up by 37.7% yoy to RM86.5m, accounting for 35.3% and 28.9% of our and consensus 2020 forecasts. This was below our expectation mainly due to lower-than-expected contribution from the upstream plantation division.

Sequentially Weaker, Core Net Profit Declined 83.6% Qoq to RM12.2m

GENP’s 2Q20 revenue was lower by 4.3% qoq to RM544.3m while PBT plunged 57.2% qoq to RM38.8m. Profits was lower qoq partly attributable to lower palm products prices, decline in biodiesel sales and temporary closure of Premium Outlets due to Movement Control Order. GENP’s CPO ASP was at RM2,325/MT in 2Q20 (1Q20 ASP: RM2,619/MT). After adjusting for one-off items, GENP’s 2Q20 core net profit was lower by 83.6% qoq to RM12.2m. GENP declared an interim DPS of 6 sen for the quarter (6M19 DPS: 3.5 sen).

Maintaining Our HOLD Rating on GENP and 12-month TP of RM10.80

Given the weaker-than-expected 6M20 results, we cut our 2020 core EPS by 6.8% to account for lower contribution from the plantation division, while maintaining our 2021- 22E forecasts. Our CPO ASP assumptions for 2020-22E stands at RM2,350-2,550/MT. We expect earnings to improve in 2H20 as we believe FFB and CPO production will continue to pick up as we enter the peak production period in Oct/Nov and this should help to bring down the unit production cost. We maintain our HOLD rating on GENP and DCF-derived 12-month target price of RM10.80.

Key Risks

Key upside/downside risks include: 1) stronger/weaker economic growth leading to a higher/lower consumption of vegetable oils; 2) a sustained rebound/plunge in CPO prices; 3) higher-/lower-than-expected FFB and CPO production; and 4) changes in policies.

Source: Affin Hwang Research - 27 Aug 2020