Result

• Genting Plantations posted a PATAMI of RM26.1m for 1QFY18. After adjusting for the forex exchange losses of RM10.5m We derived a core net profit of RM36.7m, which slumped 50% qoq and 52% yoy.

• The lackluster performance was mainly attributed to poor performance in Malaysian plantation in view of lower average selling price (ASP).

• Below expectation. 6MFY18’s core net profit was below ours and consensus full year estimates, only matching 28% and 32% respectively in view of lower ASP and higher-than expected finance costs.

Comment

• Lower ASP on CPO and Palm Kernel weighed on plantation segment performance, especially in Malaysian operation. We learnt that there was a change in crop pattern in Malaysian operation in June, which resulted a significant drop in yield. Overall plantation revenue down 13% qoq and 17% yoy. Likewise, EBITDA also dropped 36% qoq and 32% yoy. The lackluster performance was a result of lower CPO and Palm Kernel ASP. Meanwhile, QoQ performance further compounded by lower FFB production (-1% qoq) whilst YoY performance was mitigated by improvement in FFB production (+5% yoy). Cumulatively, 6MFY18 EBITDA down 14% yoy to RM249.9m in view of lower ASP (CPO -18% yoy; Palm Kernel -24% yoy) which outweighed higher FFB production (+12% yoy)

• Higher capacity utilisation lifted downstream manufacturing performance. The group’s EBITDA surged to RM4m in 2QFY18 from RM0.4m in 1QFY18 and RM2.7m in 2QFY17. This was due to biodiesel and refinery operations recorded higher capacity utilization from higher offtake. Similarly, 6MFY18 EBITDA soared 116% yoy to RM5m, underpinned by higher revenue of RM476.5m (+5% yoy).

• Property segment yet to see improvement. 2QFY18 EBITDA decreased 14% qoq and 28% yoy to RM4.1m. On the same note, 6MFY18 EBITDA down 14% yoy to RM8.9m. Looking forward, the group will continue focusing on affordable housing that aligned to market demands.

• Looking forward, the group expects FFB production growth to continue, driven by its Indonesian estates.

We learnt that the group is targeting 15%-20% growth in FFB production for FY18 given higher output from Indonesian operation amid additional mature areas and new planting. Nevertheless, the prevailing insipid ASP may put downward pressure to the segment. Meanwhile, downstream manufacturing segment will focus on improving its refinery operation’s offtake and capacity utilization. Besides that, the group will leverage on its position as a major supplier of B7 biodiesel in Sabah and continue supplying for the local market.

• Declared 4.75 sen/share with ex-date on 13 Sep 2018.

We expect total dividend payout of 13.5 sen/share for FY18 which translates into a dividend yield of 1.4%, based on current share price.

Earnings Outlook/Revision

• We slash our earnings forecast for FY18 and FY19 by 27.6% and 23% as we take into account the prevailing soft CPO prices.

Valuation & Recommendation

• Downgrade to HOLD from BUY with a lower target price of RM10.27 (previously was RM10.82). We derive our target price based on SOP valuation. Our target price also implies a PER of 25.7x of its FY19 EPS. Overall, we are neutral with the group’s prospects in view of the soft CPO prices despite the strong growth in FFB production and its ability to operate efficiently.

Source: JF Apex Securities Research - 29 Aug 2018