Period

1Q15

Actual vs. Expectations

Genting Plantations (GENP)’s 1Q15 core net profit* (CNP) of RM64m missed consensus’ expectation at 17% of their RM366m forecast but is broadly within ours at 19% of our RM329m forecast.

We consider 1Q15 as broadly within our expectation as the 1Q tends to be the seasonally weakest quarter for plantations. Note that GENP’s 5-year history shows that 1Q averaged 22% of full-year earnings.

Dividends

No dividend was announced, as expected.

Key Results Highlights

YoY, 1Q15 CNP dropped 22% to RM64m as Plantation segment’s EBIT was halved to RM60m due to CPO prices falling 16% to RM2,246/MT and FFB volume declining 6% to 353k MT. However, Property segment’s EBIT improved 82% to RM35m partly on one-off gains from divestment of the Genting Permaipura golf course (RM20m). Note that GENP also disposed 153 acres of its Kedah land for RM40m during the quarter.

QoQ, 1Q15 CNP fell 56% on weaker Plantation segment’s EBIT (-42% to RM60m) as FFB production dropped 25% to 353k MT on seasonal weakness. Property earnings were lower as well (-60% to RM35m) from a high base as the previous quarter performed exceptionally well due to a one-off land sale of RM143m.

Outlook

We are overall neutral on Plantation as we expect CPO prices to trade range-bound around our FY15 forecast of RM2,200/MT or -8% YoY. However, this could be partially offset by GENP’s above-average FY15E FFB growth prospects of 11% (against sector average of 5%).

We are also neutral on Property outlook. Although we are positive on the Johor Premium Outlet business and upcoming Genting Premium Outlet (due for completion in 4Q16) , we think near-term property sales could be weaker due to GENP’s significant exposure to the soft Johor property industry (c.70% of Property landbank).

Change to Forecasts

No change to our FY15-16E forecasts.

Rating

Maintain UNDERPERFORM

Valuation

Our RNAV is slightly lowered (-1.6% to RM1.09b) as we account for the sale of its Kedah landbank during the quarter. We note that RNAV is reduced due to the estimated sale price of RM9/sqft being lower than our estimated RM12/sqft.

However, we raise our SoP-based TP to RM9.89 (from RM9.57) as we partly roll forward our Plantation segment’s valuation base from FY15 to an average FY15- 16E net income of RM305m (from RM293m). We maintain our Plantation’s valuation basis of 21x, which implies +0.5SD on GENP’s historical valuation, in line with planters with above-average FFB growth expectations.

Despite our higher TP, we maintain our UNDERPERFORM call on GENP as the total return of 1.0% (upside: 0.1%, dividend yield: 0.9%) is less than 3.0%.

Risks to Our Call

Better-than-expected CPO prices.

Higher-than-expected earnings from property division.

Source: Kenanga Research - 28 May 2015