Result

• Genting Plantations posted a net profit of RM202mil for 4QFY16. After adjusting for the forex exchange gain of RM12.4m coupled with one off intangible assets written off from Biotechnology segment of RM80m and RM136.9m gains on disposal of land, we derived core net profit of RM132.7m, which increased 36.4% qoq and 109.1% yoy. The vibrant performance in this quarter was propelled by plantation segment which was underpinned by recovery in FFB production and favorable average selling price.

• Above expectations. 12MFY16 core net profit of the Group made up 121% and 122% of our and consensus full year estimates respectively given ballooned selling price in Palm Kernel.

Comment

• Current quarter core net profit elevated by plantation segment which was underpinned by strong FFB growth and further improvement of selling prices. The compelling performance in 4QFY16 was underpinned by higher revenue in 4QFY16 of RM513.4m (+29.4% qoq, +21% yoy), which was mainly attributed by plantation segment in view of favorable recovery of FFB production (+21.4% qoq) coupled with slight improved in ASP for CPO (+9% qoq) and Palm Kernel (+5.9% qoq). On the same note, on a yearly basis, the better performance was a result of jump in ASP for CPO (+37.3% yoy) and Palm Kernel (+76.7% yoy) coupled with higher FFB production (+6.2%).

• 12MFY16 core net profit was attributed by stellar performance in Indonesia plantation operation. The stellar 12MFY16’s core net profit of RM301.6m (+46.8% yoy) was due to strong earnings picked up in Indonesia operation with PBT jumped from RM11.1m to RM103.2m given additional of harvesting areas and improved maturity profile. Besides, Biotechnology segment also achieved lower PBT losses of RM19.2m as compared to losses of RM31.2m in 12MFY15 in view of lower research and development expenditure. Nevertheless, the core net profit was softened by lackluster property segment with PBT whittled 31% yoy to RM42.2m.

• Looking forward, the performance in FY17 would be driven by strong FFB production growth in Indonesia operation. Overall FFB production in FY16 declined 6.2% yoy due to the lagged weather effects despite increased harvesting areas and a better age profile in Indonesia. Nevertheless, we understand that FFB growth rate in FY17 is expected to be double digits, in tandem with the optimistic of high production growth in Indonesia operation while Malaysia operation

posting a low single digit growth.

• Property segment remains sluggish with current unbilled sales of RM25m. We believe the property segment to remain subdued in view of the bleak property market condition. In addition, we learnt that the group will focus on ensuring the range of new offerings are aligned with prevailing demand trends and affordability, which generally command lower margins to the Group.

• Declared 11 sen/share special dividend with Ex-date on 27 March 2017. Meanwhile, the Group also proposed a final net dividend of 8 sen/share. All in, total dividend payout for FY16 would be 21sen, which translate into dividend yield of 1.9% based on current share price.

Earnings Outlook/Revision

• We adjust upwards our earnings forecast for FY17 by 6.5% to take into account strong growth in Indonesia operation and better margin in view of lock-in favorable fertilizer cost. At the same time, we introduce our earnings forecast for FY18 which see 7.7% yoy growth.

Valuation & Recommendation

• Maintain HOLD with a higher target price of RM10.42 (previously was RM9.53), after pegging at higher PER of 20x FY17 earnings under plantation segment in our SOP valuation. Our target price also implies a PER of 28x of its FY17 EPS. Overall, we hold our neutral stance on the group as we do not foresee any immediate catalyst to drive the Group’s share price with unfavourable risk-reward.

Source: JF Apex Securities Research - 23 Feb 2017