News    It was reported in The Star Online that Genting Plantations (“GENP”) unit planning to issue a RM1.5b 15-year Sukuk program. Note that RAM Ratings Services Bhd has assigned AA2 rating to the Sukuk with stable outlook.

Comments    We are neutral on the news pending the formal announcement from GENP on the yield achieved and the rationale to raise the Sukuk.

Given its net cash position of RM171m (as of 31-Mar-2013), GENP balance sheet is still strong. We expect GENP net gearing to be around 0.38x post the issuance of the Sukuk. This is close to its peers net gearing, which range from 9% to 35% (SIME: 27%, IOICORP: 35% and KLK: 9%). 

Out of the total RM1.5b raised, we believe most of it will be used to develop GENP’s plantation land in Indonesia. Note that GENP is expected to achieve new planting of up to 10,000 ha (or 8% expansion in its planted area) in 2013.

Outlook   We believe the long term prospect for GENP remain bright. However, the current low CPO prices may limit the share price upside.

Forecast   Maintaining our FY13E-FY14E core earnings of RM327m-RM388m.

Rating   Maintain  MARKET PERFORM

Despite the limited upside, the strong liquidity in the local market and good earnings growth from its property division should keep the share price downside limited.

Valuation    Pending the result release in the end of Aug-2013, we maintain our TP of RM9.85 based on Sum-Of-Parts.

Risks   Worse than expected CPO prices.

Worse than expected sales and profit margin from the property division.

Source: Kenanga