Result

• Genting Plantations posted a net profit of RM76.5m for 3QFY17. After adjusting for the forex exchange losses of RM2.5m, we derived a core net profit of RM79.0m, which improved 3.6% qoq but down 14.5% yoy.

• Within our expectation. 9MFY17’s core net profit was within our and consensus’ full year estimates, matching 79.9% and 70.4% respectively.

Comment

• 3QFY17’s core net profit up 3.6% qoq, lifted by RM2.4m gains in other segment with plantation and manufacturing segments remained flat. Plantation segment’s PBT for both Malaysia operation (MO) and Indonesia operation (IO) inched down 0.4% qoq and 0.6% qoq respectively despite higher revenue (MO:+16% qoq, IO:+11.6 qoq) given lower margin achieved. Higher revenue recorded was a result of higher FFB production (+6.9% qoq) coupled with higher palm kernel ASP (+11%qoq) which outweighed a slide in CPO ASP (-3% qoq). Besides, downstream manufacturing remained resilient, with 3QFY17’s PBT inched down 0.1% qoq.

• 3QFY17’s core net profit down 14.5%, bogged down by unfavorable performance in plantation segment under MO, which mitigated by better performance in IO. Plantation segment’s revenue for Malaysia operation (MO) decreased 7% yoy with PBT down 23% yoy. The performance in MO was mainly attributed to lower FFB production. Meanwhile, IO’s revenue surged 63% yoy with PBT elevated 82% yoy, underpinned by higher FFB production. Overall, ASP for CPO remained unchanged on a yearly basis but ASP for Palm kernel down 15% yoy. Meanwhile, downstream manufacturing performance returned to profit with PBT of RM2.6m as compared to losses of RM1.9m in preceding quarter as a result of higher sales and capacity utilization from its operations.

• 9MFY17 core net profit up 44% yoy, boosted by higher ASP (CPO+10% yoy, Palm Kernel +4% yoy) coupled with recovery in FFB production (+25% yoy). Plantation segment’s revenue for Malaysia operation (MO) and Indonesia operation (IO) surged 13% yoy and 106% yoy respectively. On the same note, PBT for both MO and IO increased 11% yoy and 303% yoy respectively as a result of higher ASP and recovery in FFB production. Meanwhile, Biotechnology segment recorded narrow losses of RM8.3m as compared to losses of RM15.8m in 9MFY16 given lower research and development spending. Besides, property segment remained sluggish as the segment only achieved PBT of RM15.7m for 1HFY17 against RM29.4m in 9MFY16.
• Looking forward, the performance in 2HFY17 would be driven by strong FFB production growth in Indonesia operation as more areas coming into maturity. 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. Meanwhile, lower-than-expected recovery in FFB production across the industry might support prevailing average selling prices. We also learnt that the target utilization rate for downstream segment to be 40-45% 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 - 23 Nov 2017