Journey to Wealth

Genting Plantations - Hitting a Sweet Spot Soon

kiasutrader
Publish date: Thu, 29 Nov 2012, 10:07 AM

We are maintaining Genting Plantations as a BUY with our FV lowered to RM10.59 as  we  trim  our  CY13  earnings  forecast  to  RM427.5m,  which  is  4.6%  lower  than consensus.  We  believe  the  company  will  turn  in  better  operational  performance numbers next year, with production likely to climb by 10%-15% with the tripling of its output in Indonesia due to the improving age profile of its trees. The stronger production will likely help the company at least break even in Indonesia next year, as Genting Plant is currently already profitable at the operational level.  

A  better  3Q,  but  deficit  stands.  Genting Plant's 3Q core earnings of RM95.3m were significant  better  by  27.9%  q-o-q,  driven  by  a  recovery  in  its  FFB  production.  This brought its YTD core earnings to RM240.2m, which means its full-year earnings will fall short  of  our  and  consensus  forecasts  of  RM393.1m  and  RM370.1m  respectively.  We note that since its 2Q results, the consensus forecast has been reduced by 13.2% to the current levels.
 
Production  to  increase  further  in  4Q.  Management  indicated  that  its  Malaysian production  in  4Q  will  likely  be  some  10%  higher  than  in  3Q,  with  the  caveat  that production in December does not drop more than 10% against November's numbers. This  is  due  to  the  later  peaking  of  its  production,  particularly  in  Sabah  where  the seasonal upswing started later than usual this year.

Progress  in  Indonesia.  The  company  has  made  fairly  good  progress  in  Indonesia  in increasing its planted hectarage and production. New planting amounted to 1,500 ha in 3Q, bringing its YTD new planting to 4,000 ha. It expects to hit 6,000 ha of new planting by end-2012. Together with the new JV, which brings in another 14k ha of planted area, its  planted  area  in  Indonesia  will  reach  60k  ha,  which  is  roughly  the  same  size  as  its estates  in  Malaysia.  In  terms  of  production,  its  new  mill  was  completed  in  September and with the oil extraction rate at 24%, made a small operating profit in its first month.  

Trimming  forecast.  With  4Q  CPO  price  being  weaker  but  mitigated  by  its  higher production  and  lower  cost  due  to  low  fertilizer  application,  we  are  trimming  our  FY12 earnings forecast to RM345.2m from RM393.1m previously.  Its cost for 2013 is likely to be  some  RM50'RM100 per tonne higher than this year's, with the higher labour cost mitigated by a 7% decline in fertilizer price. We are factoring in the cost of production at RM1,350  per  tonne  for  FY13  compared  to  RM1,100  previously  and  a  10%  growth  in production. As a result, our forecast is cut to RM427.5m from RM457.5m previously. Our revised FY13 forecast is now lower than consensus' despite our more bullish CPO price assumption. Genting Plant remains a BUY, with a lower sum-of-parts FV of RM10.59.
Source: OSK
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