Period  3Q14/9M14

Actual vs. Expectations Genting Plantation (GENP)’s 9M14 core net profit* (CNP) of RM237m is within expectation as it makes up 73% of consensus forecast (RM324m) and 76% of ours (RM312m). Although CPO prices came in lower than expected at RM2,216/MT (against our expectation of RM2,500/MT), FFB growth by 12% YoY to 431k MT surpassed our expectation of 9% growth.

 Note that we have excluded forex gain of RM5m in our 9M14 CNP calculations. As for 9M13, the one-off charity donation of RM35m and forex loss of RM44m is excluded.

Dividends  None as expected.

Key Results Highlights YoY, 9M14 CNP increased 17% to RM137m due to strong core EBIT growth from plantation division (+25% to RM294m) which has benefited from higher CPO prices of RM2472/MT (+6% YoY) and better FFB volume of 1.18m MT (+11% YoY). Despite strong 25% growth in plantation division, the Group’s overall growth is capped at 17% due to lower core EBIT growth from property division (+14% to RM67m). We estimated that 9M14 plantation core EBIT was RM294m after excluding forex gains of RM5m. 9M13 core EBIT was RM236m after excluding the one-off charity donation of RM35m and forex loss of RM44m.

 QoQ, 3Q14 CNP declined 19% to RM70m due to a 24% decline in plantation core EBIT to RM86m although improved property core EBIT by 42% to RM28m cushioned the decline. We estimate that 3Q14 plantation core EBIT was RM70m (after excluding forex gain of RM1m). For 2Q14, we estimate this to be RM112m after excluding forex loss of RM17m.

Outlook  We are revising down our CPO prices assumption in 2014 to RM2,400/MT (from RM2,500/MT) due to lower-than-expected CPO prices seen in 3Q14 caused by a significant decline in soybean oil (SBO) prices to average US 32 cents/pound (vs. our assumptions of US 35 cents per pound). Note that SBO prices have been affected by bumper soybean crops coming from the US.

 We are looking to revise our 2015 CPO price downwards soon, which will drag FY15E earnings.

Change to Forecasts Despite the results meeting expectation, we believe that 4Q14 earning is likely to disappoint due to prevailing low CPO prices at around RM2,200/MT only. This means full-year FY14 CPO price is likely to be only RM2,400/MT against the consensus estimate of RM2,500/MT.

 Hence, we reduce our FY14E earning by 7% to RM291m after assuming lower CPO prices of RM2,400/MT (previously RM2,500/MT) and higher FFB growth of 12% (previously 9%).

 Our FY15E earnings is UNDER REVIEW at this juncture pending our new CPO prices estimate. Our last estimate for FY15E CPO prices is RM2,500/MT which is likely to be reduced.

Rating Maintain UNDERPERFORM

We are likely to reduce the TP for GENP and maintain UNDERPERFORM for the stock. Despite its lower market cap, GENP’s Fwd. PE valuation of 25.2x has exceeded some big cap planters such as IOICORP (21.2x Fwd. PE) and KLK (19.7x Fwd. PE). Hence, we believe that its share price is overvalued.

Valuation  Both the TP and FY15E EPS are UNDER REVIEW. Our last TP of RM9.55 is based on Sum-Of-Parts valuation.

Risks to Our Call Better-than-expected CPO prices.

 Higher-than-expected earnings from property division.

Source: Kenanga