We are maintaining our Buy call on Genting Plant with our FVunchanged at RM10.13. Genting Plant is a core Malaysian plantation holding andone of the biggest, best managed and most highly focused. While its PEvaluation looks stretched, this is due to the stock pricing in the value of itslandbank in Iskandar Region, which we estimate to be worth between RM1.71 and RM2.13 per share. Knocking off the Iskandar land, Genting Plant is trading at 14.7x CY12 and 13.6x CY13 earnings.
Highly leveraged toCPO price. Being an upstream plantation player in Malaysia and by virtue ofthe group being a spot seller, GentingPlant's profitability is highly leveraged to crude palm oil price. We estimatethat for every RM100 increase in CPO price, Genting Plant'snet profit will increase by RM17.1m.
Slow and steady.Genting Plant has been steadily growing its oil palm hectarage in the last 20years. Since 1991, it has increased its planted area every single year withoutfail, bringing it from 20,401 ha to 93,503 ha within a span of 20 years. Thisgives the company a long term hectarage CAGR of 7.9%.
Growth focused onKalimantan. Since 2007, and armed with a net cash balance sheet, GentingPlant started its expansion in Kalimantan as land in Malaysia became scarce andtoo expensive. As of end-2011, Genting Plant had 33,922 ha of oil palm plantedareas in Kalimantan.
Production growth.Its estates in Malaysia and Indonesia are both supportive of further productiongrowth although the bulk the growth will come from its Kalimantan estates. Assumingthat Malaysia plantation's production stays flattish going forward, GentingPlant's FFB production will increase to 2.086m tonnes by 2021 based on itsexisting planted area and conservative peak FFB yield of 24 tonnes per ha. Thisimplies a 5.1% CAGR over the next 10 years.
Owner of valuableland in Johor. To our knowledge, Genting Plant is the second largest landownerin Johor's Iskandar Region after UEM Land. Other than 96 ha of development landat its Indahpura property project, Genting Plant also owns some 2,600 ha of oilpalm plantations adjacent to its Indahpura project.