Journey to Wealth
Genting Plantations Bhd - Dragged down by low CPO prices
Period 3Q12 and 9M12
Actual vs. Expectations GENP's 9M12 core net profit of RM240m* came in below the consensus but was broadly within our expectations. It made up only 65% of the consensus' FY12 forecast of RM371m but was higher at 72% of our forecast of RM332m.
We believe that the consensus may have overestimated the CPO price performance in 3Q12, which had weakened from Sep onwards due to an inventory surge. Note that we have lowered our FY12 CPO price estimate to RM2,975/mt in our plantation sector update report on 11 Oct 2012.
Dividends No dividend was announced as expected.
Key Results Highlights YoY, the 9M12 core net profit declined 30% to RM240m as the average CPO price fell 8% to RM3060/mt while the FFB volume dropped by 7% to 932,071 mt. Cost of production is estimated to have increased by 15% due to the higher wage and fertilizer costs.
QoQ, the 3Q12 core net profit jumped 27% to RM95m as the impact of the FFB volume jump (+38% to 380,815mt) outpaced that of lower CPO prices (-11% to RM2,858/mt).
Outlook The CPO price outlook has deteriorated for both 4Q12 and CY13. With the cargo surveyors' exports data for the first 25 days of Nov showing a decline by ~2%, we see a higher possibility now of MPOB's Nov inventory level registering another record high.
Change to Forecasts Our FY12E-FY13E core net profit have been cut by 5%-8% to RM313m-RM381m. Our FY12E CPO price assumption has also been cut to RM2900/mt (from RM2975/mt) given the worse than expected CPO prices so far in 4Q12. FY13E average CPO price assumption has been lowered to RM2850/mt (from RM3000/mt).
Rating Downgrade to UNDERPERFORM
The 4Q12 earnings could disappoint even more. Note that the 4Q12 average CPO price has been weak so far at RM2266/mt (-21% QoQ).
Valuation We have reduced our TP to RM8.30 (from RM9.00 previously) based on an unchanged Fwd. PER of 16.5x on the lower FY13E EPS of 50.3 sen (from 54.4 sen previously).
Risks Better than expected CPO prices.
Source: Kenanga
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