Result

• Genting Plantations posted a net profit of RM82.1mil for 1QFY17. After adjusting for the forex exchange gain of RM2.7m, we derived a core net profit of RM80.1m, which decreased 38.1% qoq but surged 130% yoy. The vibrant performance in this quarter as compared to preceding year was attributed by growth in Indonesia plantation segment, underpinned by higher FFB production and favorable average selling price. On the flip side, quarterly performance was bogged down by lower FFB yield (-23.6% qoq) despite increase in average selling price.

• Within expectations. 3MFY16 core net profit of the Group made up 27.6% and 22.4% of ours and consensus full year estimates respectively.

Comment

• Core net profit dropped 38.1% qoq, dragged down by planation segment in view of seasonally lower FFB production (-23.6% qoq). Plantation segment’s revenue for Malaysia operation and Indonesia operation down 51% qoq and 15% qoq respectively. Similarly, PBT slid 44% qoq and 15 % qoq. The unfavorable performance was mainly attributed to low FFB production (-23.6% qoq) despite higher average selling prices for CPO (+6.8%) and Palm Kernel (11.2%). In addition, the performance also affected by lower property PBT of RM4.7m against RM11.4m in last quarter. Meanwhile, downstream manufacturing performance remained flat with a loss of RM0.4m.

• Higher FFB production and average selling price catapulted 1QFY17’s core net profit on a yearly basis.

Plantation segment’s PBT for Malaysia operation and Indonesia operation surged 67% yoy and 370% respectively. These were attributed to higher FFB production (+14.9% yoy) and higher CPO (+34% yoy) and Palm Kernel (+66% yoy) average selling prices. Higher FFB production was mainly due to an additional harvesting areas and improved maturity profile in Indonesia operation. In addition, the performance also buoyed by lower fertilizer cost with Malaysia operation and Indonesia operation dropped 6.7% yoy and 17.8% yoy respectively. As such, core net profit margin increased by 6.8 points to 20.5%.

• Looking forward, the performance in FY17 would be driven by strong FFB production growth in Indonesia operation. We understand that the Group is targeting 15% yoy FFB growth in FY17, in tandem with the anticipated higher production growth in Indonesia operation while Malaysia operation will post a low single digit growth. Nevertheless, the performance may be mitigated by softening average selling prices moving forward in view the recovery in FFB production across the industry. Meanwhile, we learnt that the target utilization rate for downstream segment to be 40% in FY17 which will translate into a better economies of scale.
   
• Property segment remained sluggish with current unbilled sales of RM26m given new sales of RM27m achieved in 1QFY17. 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 render lower margins to the Group. Meanwhile, the soft launch of the Group’s second premium outlet, located in Genting Highlands, to be targeted in June 2017.

Earnings Outlook/Revision

• No change to our earnings forecasts for FY17F and FY18F.

Valuation & Recommendation

• Maintain HOLD with an unchanged target price of RM10.42. We derived our target price based on 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 - 30 May 2017