Result

• Genting Plantations posted a PATAMI of RM101m for 1QFY18. After adjusting for the forex exchange gains of RM13.8m and net surplus arising from government acquisition (land sales) of RM14.4m. We derived a core net profit of RM72.8m, which was down 30% qoq and 12% yoy.

• QoQ performance was mainly bogged down by downstream segment. Meanwhile, YoY performance was dragged down by higher interest expenses despite a slight improvement in plantation segment.

• Below expectation. 3MFY18’s core net profit was below our and consensus full year estimates, matching 19.7% and 18.6% respectively in view of lower average selling price achieved in 1QFY18.

Comment

• Plantation segment performance was buoyed by profit realized from drawdown of stocks held by the Downstream Manufacturing segment despite lower CPO and Palm kernel average selling prices (ASP). 1QFY18 revenue dropped 19% qoq and 8% yoy. Lower revenue posted was mainly due to slide in ASP achieved (CPO: RM2375/mt -8% qoq, -22% yoy; Palm Kernel: RM2083/mt - 18% qoq, -33% yoy). Nevertheless, higher FFB production on a yearly basis (+20% yoy) mitigated the negative impact of ASP. We understand that the drawdown of stocks was mainly due to timing of the shipments. Therefore, it lifted Malaysia Operation by c.RM25m on EBITDA level. Thus, 1QFY18 EBITDA improved 3% qoq and 5 % yoy despite lower revenue.
• Lower capacity utilisation weighed on Downstream Manufacturing performance in 1QFY18. Downstream Manufacturing posted EBITDA of RM0.4m which was down 94% qoq but improved from a loss of RM0.4m in 1QFY17. We understand the utilisation rate for refinery stood at 40%. However, the group is targeting 60%. Nevertheless, the improved Biodiesel demand from Euro in view of current oil price level has buoyed performance in downstream manufacturing.
• Property segment remained lackluster. 1QFY18 EBITDA decreased 38% qoq but improved 2% yoy to RM4.8m. Looking forward, the group will continue focus on affordable housing that aligned to market demands.

• Looking forward, performance of the group will be mainly propelled by Plantation segments, underpinned by growth in FFB production. We learnt that the group targets 20% growth in FFB production in FY18 given higher output from Indonesia operation amid additional mature areas and new planting. Nevertheless, Malaysia operation is expected to pose a flattish growth in FY18. Meanwhile, downstream manufacturing segment will continue to leverage on its position as a major supplier of biodiesel in Sabah and focus on improving its capacity utilisation rate.

Earnings Outlook/Revision

• We retain our earnings forecast for FY18 and FY19 as we expect CPO prices to pick up in coming quarters.

• Major risk for our earnings forecast is lower-than-expected CPO price. Meanwhile, we learnt that for every RM100 increase in minimal wages, it would cause downward pressure to the group earnings by RM3.5-RM4m.

Valuation & Recommendation

• Maintain BUY with an unchanged target price of RM10.82. We derive our target price based on SOP valuation. Our target price also implies a PER of 22.2x of its FY18 EPS. Overall, we are sanguine on the group’s prospects as it is able to continue operating efficiently.

Source: JF Apex Securities Research - 24 May 2018