• GENP’s 9M20 core net profit of RM154.4m (+99.2% yoy) came in slightly above our expectations. The variance was mainly due to a higher-than-expected contribution from the plantation division
• We raise our 2020E/21E core EPS by 3.4%/1.4%, mainly to take into account higher contribution from the upstream plantation division with a higher CPO assumption of RM2,600/MT from RM2,450-2,500/MT previously, but partially offset by a lower FFB production forecast. Meanwhile, we lower our 2022E core EPS by 6.6% given a lower CPO ASP assumption of RM2,500/MT from RM2,550/MT
• Maintain BUY rating on GENP with an unchanged DCF-derived TP of RM10.82

9M20 core net profit at RM154.4m – above our expectations

Genting Plantations’ (GENP) 9M20 revenue was higher at RM1.76bn, up 8.4% yoy. This was mainly attributable to the higher contribution from upstream plantation (higher palm products prices) but partially offset by lower revenue from the downstream manufacturing (softer demand for biodiesel and refined palm products) and property divisions (lower property sales). For 9M20, GENP’s CPO and PK ASPs were higher by 26.2% and 23.3% yoy at RM2,478/MT (9M19: RM1,963/MT) and RM1,432/MT (9M19: RM1,161/MT), respectively, although GENP’s FFB production declined by 7.9% yoy to 1.49m MT (attributable to the lagged effect of adverse weather conditions in 2019). GENP’s EBITDA margin increased to 19.5% (+3ppt) in 9M20, mainly due to better margins from the upstream plantation division given the stronger palm products prices. GENP’s PBT (which includes forex gain and gains from disposal of assets) increased by 87.1% yoy to RM195.2m due to higher profits from the upstream plantation division that offset the drop in contribution from the property and downstream manufacturing divisions. After adjusting for one-off items, the 9M20 core net profit was up by 99.2% yoy to RM154.4m, accounting for 73% of our previous full-year forecast. This was slightly above our expectation mainly due to higher-than-expected contribution from the upstream plantation division.

Sequentially stronger, core net profit up >100% qoq to RM67.9m

GENP’s 3Q20 revenue was higher by 18.6% qoq to RM645.6m while PBT increased by 69.5% qoq to RM65.8m. Profits was higher qoq partly attributable to stronger palm product prices, higher FFB production and increased sales volumes from refinery. GENP’s CPO ASP was at RM2,504/MT in 3Q20 (2Q20 ASP: RM2,325/MT) and FFB production increased by 7.5% qoq to 538k MT. After adjusting for one-off items, GENP’s 3Q20 core net profit was higher by >100% qoq to RM67.9m.

Maintaining our BUY rating on GENP with an unchanged TP of RM10.82

Given the strong 9M20 results, we raise our 2020E/21E core EPS by 3.4%/1.4%, mainly to take into account higher contribution from the upstream plantation division with a higher CPO assumption of RM2,600/MT from RM2,450-2,500/MT previously but partially offset by a lower FFB production forecast. Meanwhile, we lower our 2022E core EPS by 6.6% given the lower CPO assumption of RM2,500/MT from RM2,550/MT. Our DCF-derived 12-month target price remains unchanged at RM10.82, and we maintain our BUY rating on GENP given its improving earnings prospects with rising FFB and CPO production (given the increase in matured hectarage) as well as higher contribution from its downstream manufacturing division going forward.

Key risks

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

Source: Affin Hwang Research - 26 Nov 2020