We are keeping our BUY recommendation on Genting PlantationsBhd (GenP) with a higher fair value of RM10.65/share (vs. RM9.25/sharepreviously) based on an FY12F PE of 18x. Our previous PE assumption was15x. 

GenP's historical PE band ranged from a low of 5x to a highof 28x in the past seven years. The group's average PE was 16x. 

GenP's 4QFY11 results were within consensus estimates andour forecast. We have tweaked GenP's FY12F earnings forecast downwards by 3%due to housekeeping reasons.

GenP has declared a special gross DPS of 6.25 sen less 25%tax and a final gross DPS of 5.75 sen less 25% tax for FY11. These bring totalgross DPS to 16.25 sen for FY11 (FY10: 12.5 sen), which translates into a yieldof 1.8%. 

GenP's strong net profit growth of 36.6% in FY11 was underpinnedby a 15% increase in FFB production and 18% expansion in the average CPO price.Average CPO price realised was RM3,240/tonne in FY11 compared with RM2,738/tonnerecorded in FY10.

From the conference call yesterday, we understand that GenPis currently selling its CPO production at spot prices. The group has not facedany problems selling its CPO production to refineries in Malaysia.

GenP's operating cost was RM1,064/tonne in FY11, marginallyhigher than the RM1,053/tonne recorded in FY10. Operating cost could increasein FY12F due to higher fertiliser costs. We understand that cost of fertiliser sourcedfor 1HFY12 have risen by 21% compared to FY11.GenP's FFB production is expectedto expand by 8% to 9% in FY12F. The plantation division in Indonesia isenvisaged to account for 6 percentage points of the 8% to 9% FFB output growthwhile Malaysia is anticipated to account for the balance 2 to 3 percentagepoints. 

GenP's FFB production in Indonesia is expected to rise fromabout 24,000 tonnes in FY11 to 100,000 tonnes in FY12F.

So far, GenP has not experienced any tree stress. The groupexpects the FFB yield of its oil palm trees in Peninsular Malaysia to remainflat in FY12F while that of the trees in Sabah might improve by 5%.  

GenP declined to reveal the profitability of Johor Premium Outlet(JPO). However, we understand that the numbers were within management'sexpectation. JPO was officially opened on 2 December 2011.

Source: AmeSecurities