Result

• Genting Plantations posted a net profit of RM71m for 2QFY17. After adjusting for the forex exchange losses of RM5.3m, we derived a core net profit of RM76.2m, which slid 7.2% qoq but surged 112% yoy. The acceptable performance was mainly attributed by recovery in FFB production that mitigated by the dip in average selling prices (ASP) for both CPO and Palm Kernel. In addition, the performance was buoyed by downstream manufacturing segment as it has returned to the black. Meanwhile. Biotechnology segment also incurred narrow losses in this quarter.

• Within our expectation but below consensus. 6MFY17’s core net profit was within our full year estimates but below consensus, matching 53.3% and 42.7% respectively.

Comment

• 2QFY17’s core net profit slid 7.2% qoq, as lackluster performance in Indonesia Plantation overshadowed the better performance in Malaysia Plantation. Plantation segment’s revenue for Malaysia operation (MO) improved 3.9% qoq but Indonesia operation (IO) was down 18.8% qoq. Similarly, MO’s PBT up 14.8% qoq but IO’s PBT fell 17.9 % qoq. Overall, the weaker qoq result was mainly attributed to lower ASP for CPO (-12% qoq) and Palm Kernel (-35% qoq) despite higher FFB production (+13 % qoq). Meanwhile, downstream manufacturing performance returned to profit with PBT of RM2.7m as compared to losses of RM0.4m in last quarter as a result of higher sales and capacity utilization from its operations.
   
• 1HFY17 core net profit more than doubled to RM158.4m from RM71.6m, boosted by higher ASP (CPO+17% yoy, Palm Kernel +19% yoy) coupled with recovery in FFB production (+34% yoy). Plantation segment’s revenue for Malaysia operation (MO) and Indonesia operation (IO) surged 96.3% yoy and 151% respectively. On the same note, PBT for both MO and IO elevated 59.7% yoy and 88.3% yoy respectively as a result of higher ASP and recovery in FFB production. Meanwhile, Biotechnology segment recorded narrow losses of RM5.5m as compared losses of RM11.1m in 1HFY16 given lower research and development spending. Besides that, property segment remained sluggish as the segment only achieved PBT of RM10.4m for 1HFY17 against RM18m in 1HFY16.
   
• Looking forward, the performance in 2HFY17 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 might 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 yields a better economies of scale.

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 retain our neutral stance on the Group as we do not foresee any immediate catalyst to drive the Group’s share price with prevailing unfavourable risk-reward.

Source: JF Apex Securities Research - 24 Aug 2017