Genting Plantation’s (“GENP”) property division has performed exceptionally well with its FY12 PBT surging by 50% YoY to RM33m. Additionally, we believe its contribution to GENP’s PBT should increase to a more significant level of 14% in FY13E (against 8% in FY12). As for its plantation division, we expect a lower PBT YoY in FY13E due to lower CPO prices, but the fall should be cushioned  by its good FFB growth prospect. We have changed our valuation method to Sum-OfParts to capture the rising value of GENP’s landbank (especially in Iskandar Johor) leading to our new Target Price (“TP”) of RM9.85. Our previous TP was RM9.00 based on a Fwd. PER of 17.6x on its CY14E earnings. Despite the increase in our TP, we are maintaining our MARKET PERFORM call as we believe that most of the positive boosts from its property division’s good prospects have already been priced in.

Property division is the rising star. GENP’s property division has performed exceptionally well with its FY12 PBT surging 50% YoY to RM33m. This was mainly driven by the better demands for its commercial and industrial products in Iskandar Malaysia Johor (especially in its flagship Genting Indahpura project). In line with our property analyst’s bullish view on Iskandar Malaysia, we are positive on the prospect for the division both in the short and long term. Although its earnings contribution is still small at 8% to the group’s PBT in FY12, we think this should grow to a more significant level of 14% in FY13E.

Plantation division earnings affected by low CPO prices, but the impact will be mitigated by good FFB growth. In 1Q13, the plantation division’s core PBT declined 34% YoY to RM75m due to low CPO prices. We estimate that the average realised CPO price has slipped 28% YoY to RM2293/mt. However, the good FFB production in 1Q13 (+32% to 364k mt) managed to mitigate the earnings fall. Up until May-2013, the first five months (“5M13”) FFB production was still registering a good  growth of 27% YoY to 576k mt. We believe the high level of FFB growth (against its peers) was due partially to productions at additional 10,000 ha of estates in Indonesia should mature this year. We are positive on the increasing volume of FFB as it should cushion the earnings fall during the current low CPO price environment.

Maintains FY13E-FY14E earnings of RM327m-RM388m.  Our key assumptions are FY13E-FY14E average CPO prices of RM2500-RM2700 per mt. We have also assumed FY13E-FY14E FFB volumes of 1.58m-1.71m mt. This represents a healthy FFB growth of 14% in FY13E and 8% in FY14E due to its maturing estates in Kalimantan.

New higher TP of RM9.85 based on Sum-Of-Parts (“SOP”) but maintaining our MARKET PERFORM rating. In view of the rising earnings contribution from the property division and the significant increase in the value of GENP’s landbanks, we have changed our valuation method to Sum-Of-Parts. As a result, we have increased our Target Price to  RM9.85 (from RM9.00 previously). Nevertheless, we are maintaining our MARKET PERFORM rating as we believe that most of the positive boosts from its property division’s good prospects have already been priced in.

In our new valuation method, we have valued the property division at RM900m or RM1.19/share based on the market value of its five pieces of land in Johor, Kedah and Melaka. The highest increase is estimated to be in Johor, where we believe that the value of the company’s lands here alone have appreciated by at least RM275m based on the current prevailing market prices. Note that all the lands above are carried in GENP’s books at their last revalued prices done way back in 1983 and 1996.

Source: Kenanga