Journey to Wealth
Genting Plantations Bhd - OUTPERFORM - 30 May 2012
Period 1Q12.
Actual vs. Expectations
The results were below expectations due to a higher-than-expected fertilizer cost and a lowerthan-anticipated palm kernel prices. The 1Q12 core net profit of RM69m* made up only 15% of the consensus' forecast of RM466m and 14% of our forecast of RM495m.
Fertiliser cost surged in 1Q12 while palm kernel prices tumbled 36% YoY to RM1,941 per mt. GENP also applied a higher usage of fertiliser in 1Q12 due to the wet weather.
Dividends No dividend was announced as expected.
Key highlights
YoY, the earnings declined 16% due to a higher fertiliser cost and usage coupled with significantly lower palm kernel prices at RM1,941 per mt (-36% YoY).
QoQ, the earnings dropped by 16% due to a seasonally lower FFB production in 4Q12 of 275k mt (-25% QoQ).
Outlook The fertiliser cost should normalise in 2H12 in line with the lower crude oil prices so far in 2Q12. However, on a YoY basis, the fertiliser cost in FY12E will still be higher by 20%.
2H12 results should improve as an additional 10k-12k mt of FFB will come in after completion of the JV with Global Agrindo Investment (GAI) in end-2Q12.
Indonesian estates FFB should grew 6% YoY. This should cushion the increase in cost and the lower palm kernel prices.
Change to Forecasts
We have revised down our FY12-13E net profits by 8%-9% to RM455m-RM491m as we have assumed a higher fertiliser cost growth (YoY) of 20% (against 10% previously).
After accounting for the lower palm kernel prices, our overall cost of production for CPO in FY12-13E has been increased by 17%-19% to RM1,160-RM1,150 per mt.
Rating Maintain OUTPERFORM
Long term growth prospect remain intact. Post JV with GAI, GENP will be able to speed up their planting by additional 10k ha per year.
Valuation We have lowered our target price by 7% to RM9.90 (previously RM10.70). Our valuation is based on an unchanged 16.5x Fwd. PER on the lower FY12E EPS of 60.0 sen (from 65.3 sen).
Risks A sustained decline in CPO prices.
Source: Kenanga
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