Result

• Genting Plantations posted a PATAMI of RM14.3m for 4QFY18. After adjusting for the forex exchange losses of RM3.4m We derived a core net profit of RM17.7m, which slid 36% qoq and 83% yoy.

• Unfavourable QoQ performance was bogged down by Property and Downstream Manufacturing segments that moderated by better performance in Plantation segment.

• Lackluster YoY performance was mainly due to poor performance in both Plantation and Downstream Manufacturing segments.

• Below expectations. 12MFY18’s core net profit of RM154.7m was below ours and consensus full year estimates, only matching 79.7% and 71.3% respectively in view of continuous soft CPO average selling price (ASP) coupled with higher depreciation expenses given larger mature area.

Comment

• Plantation segment’s QoQ performance was lifted by strong FFB production growth that outweighed lower CPO ASP. EBITDA up 11% qoq to RM73.8m, thanks to strong FFB production growth (+21% qoq to 613,000 mt) despite lower CPO (-10% qoq to RM1848/mt) and Palm kernel ASP (- 16% qoq to RM1357/mt).

• However, Plantation segment’s YoY performance was bogged down by plunge in CPO ASP despite a growth in FFB Production. EBITDA tumbled 50% yoy in view soft CPO (-28% yoy) and Palm Kernel (-47% yoy) ASP despite a 15% yoy growth in FFB production.

• Similarly, Plantation segment’s 12MFY18 performance weighed down by soft CPO ASP. EBITDA slid 33% to RM390m with soft CPO (-22% to RM2117/mt) and Palm kernel (-31% yoy to RM1681/mt) ASP. Nevertheless, FFB production registered a growth of 11% yoy to 2.083m mt.

• FFB production growth in FY18 was underpinned by Indonesia operation. Higher FFB production growth was lifted by Indonesia operation, which saw an increase in mature areas and better age profile. Meanwhile, drop in Malaysia operation was due to delayed effects of adverse weather conditions in the preceding 2 years along with a decline in mature areas as a result of replanting activities.

• Initiative to streamline its Malaysia operation’s labour force. We learnt that the group had started its labour rationalization programe, which could save up to RM14m per year. Taking into account the effect of hike in minimum wages (increase in labour cost by RM3m), the group could enjoy the

net savings of close to RM11m.

• Downstream Manufacturing segment’s performance was fazed by contraction in margins. EBITDA was down 18% qoq/ 61% yoy with a flat revenue growth of -2% qoq/ +1% yoy. Similarly, 12MFY18 EBITDA decreased 8% to RM11.2m despite revenue growth 35% yoy to RM977.8m.

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

We learnt that the group is targeting 10-15% growth (2.291m to 2.395m mt) in FFB production for FY19 given higher output from Indonesian operation amid additional mature areas and new planting. Meanwhile, downstream manufacturing segment will focus on improving its refinery operation’s offtake and capacity utilization. Nevertheless, demand is expected to increase in view the implementation of the mandatory B10 Biodiesel for the transportation sector (starting 1 Feb) and B7 biodiesel for the industrial sector (starting 1 July).

• Proposed a final single-tier dividend of 8.25 sen per share. Including interim single-tier dividend of 4.75 sen per share, total dividend under FY18 would be 13 sen per share, which translates into a dividend yield of 1.22% based on current share price.

Earnings Outlook/Revision

• We retain our earnings estimate for FY19 and introduce our earnings forecast for FY20, with a growth of 8% yoy.

Valuation & Recommendation

• Maintained HOLD with an unchanged target price of RM10.37. We derive our target price based on SOP valuation. Our target price also implies a PER of 28.6x 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 - 27 Feb 2019