Result

• Genting Plantations posted a net profit of RM99mil for 3QFY16. After adjusting for the forex exchange gain of RM1.75m, we derived core net profit of RM97.3m, which catapulted 170.8% qoq and 193.3% yoy. The vibrant performance in this quarter was attributed to plantation segment which underpinned by recovered FFB production and favorable average selling price.

• Broadly within expectations. 9MFY16 core net profit of the Group made up 68.4% and 69.8% of our and consensus full year estimates respectively.

Comment

• Current quarter core net profit elevated by plantation segment. Higher revenue in 3QFY16 of RM396m (+28.3% qoq, +23.8% yoy) was mainly attributed by plantation segment in view of recovered FFB production (+32.8% qoq) coupled with slight improved in ASP for CPO and Palm Kernel. Meanwhile, on a yearly basis, jump in ASP for CPO (+28.6% yoy) and Palm Kernel (+93.4% yoy) outweighed the decrease in FFB production (-6.6% yoy).

• 9MFY16 core net profit was lifted by improved performance in Indonesia plantation operation and Biotechnology segment. The favorable 9MFY16’s core net profit of RM169m (+19% yoy) was due to higher earnings chalked in Indonesia operation with PBT jumped from RM7.8m to RM34m given additional of harvesting areas and improved maturity profile. Besides, Biotechnology segment also achieved lower PBT losses of RM15.8m as compared to losses of RM22.5m in 9MFY15 in view of lower research and development expenditure.

• Looking forward, the performance in 4Q would be underpinned by stronger selling price that mitigate seasonally lower output in 4Q. We understand that overall FFB production in FY16 will decline in the range of 6-10% yoy by the lagged weather effects despite increased harvesting areas and a better age profile in Indonesia. Nevertheless, soften FFB production to be lifted by stronger selling price with YTD CPO and Palm Kernel up 17% yoy and 50% yoy respectively.

• Property segment remains sluggish with current unbilled sales of RM30m. The Group envisages a flattish performance in its property segment given the current headwinds. We learnt that the Group will focus on launching more low cost units and clearing its inventory in FY16. On a brighter note, Johor premium outlet continued marking sales growth. However, it will be a delay in the opening of Genting Premium outlet to first quarter of 2017 due to construction

progress.

• Higher downstream revenue bogged down by pre commissioning costs incurred for the refinery.

Downstream segment saw revenue improve 14% qoq but ended up losses before tax of RM1.9m. This was mainly due to low capacity utilization from biodiesel operation, lower crude glycerine sales coupled with the pre-commissioning costs incurred for the refinery. Meanwhile, the development of Genting Integrated Bio refinery Complex has progressed well, with one of its key components (600,000 mt palm oil refining plant) having commenced testing and pre-commissioning.

Earnings Outlook/Revision

• We retain our earnings forecast for FY16 and FY17.

Valuation & Recommendation

• Maintained HOLD with an unchanged target price of RM9.53. Our valuation for the group is based on SOP. Our target price also implies a PER of 26.7x of its FY17 EPS. Overall, we hold our neutral stance on the group given the prevailing challenging operating environment and its rich valuation.

Source: JF Apex Securities Research - 24 Nov 2016