Period  2Q13/ 1H13

Actual vs. Expectations  Genting Plantation (“GENP”)’s 1H13 core net profit* of RM127m is below expectations, at around 39% of consensus full year forecast of (RM322m) and ours (RM327m), respectively.

 We believe the main contributory factor is the lower-than-expected CPO prices and palm kernel (PK) prices.

Dividends  An interim dividend of 3.75 sen less 25% tax was declared, which is within expectation.

Key Results Highlights  YoY,1H13 core net profit declined 13% to RM127m as CPO prices dropped 28% to RM2309/mt and PK prices tumbled 38% YoY to RM1188/mt. However, this is cushioned by its 23% FFB growth to 676k mt and sterling performance from its property division (EBIT +196% to RM46m).

 QoQ, 2Q13 core net profit declined 44% to RM46m due to seasonally lower FFB production (which slipped 14% to 312k mt) and lower property division sales.

Outlook  Current low CPO prices should limit the share price upside.

Change to Forecasts  FY13E core earning is cut by 15% to RM279m after assuming lower CPO prices of RM2400/mt (from RM2500/mt) and lower PK prices of RM1300/mt (from RM1625/mt).

 FY14E core earning is reduced by 6% to RM363m after assuming lower PK prices of RM1315/mt (from RM1625/mt). Our FY14E CPO prices estimate of RM2700/mt is unchanged as we are more optimistic on CPO prices in FY14 due to potential lower soybean production and higher demand from biodiesel usage in Malaysia and Indonesia.

Rating   Maintain MARKET PERFORM

Valuation  We have reduced our Target Price to RM9.35 (from RM9.85) based on Sum-Of-Parts valuation. Our new valuation on its plantation division has been lowered in line with lower CPO and PK prices forecast.

Risks  Lower than expected CPO and PK prices.

 Lower than expected sales from its property division.

Source: Kenanga