Period

2Q15/1H15

Actual vs. Expectations

Genting Plantations (GENP)’s 1H15 core net profit (CNP*) of RM109m missed both consensus’ forecast and ours of RM327m and RM329m, respectively, making up only around 33% of full-year forecasts.

This was due to sharply lower FFB production in 1H15 at 758m MT or 40% of our FY15E expectation (1.89m MT) due to poor weather conditions in Sabah and compounded by low CPO prices (-16% to RM2,206/MT).

Dividends

Interim dividend of 2.5 sen announced, making up 23% of our FY15 forecast (10.8 sen). We deem this inline as historically the final dividend tends to be higher.

Key Results Highlights

YoY, 1H15 CNP dropped 35% to RM109m as Plantation segment’s EBIT fell 41% to RM124m as flat FFB production (+1% to 758k MT) failed to offset lower CPO prices (-16% to RM2,206/MT). While Property segment’s EBIT improved 9% to RM43m, this was mainly due to one-off gains from the sale of Genting Permaipura (RM20m) and Kedah land (RM40m) in 1Q15.

QoQ, 2Q15 CNP declined 29% to RM45m as stronger Plantation segment’s performance (+7% EBIT to RM64m) failed to offset Property segment’s EBIT, which plunged 78% to RM8m due to a high base in 1Q15 arising from one-off land sales. However, note that Property segment’s EBIT against 2Q14 was also weaker (-61%), reflecting the slowdown in the Johor property sector.

Outlook

Management expects FY15 FFB production in Indonesia to improve 35%, while production in Malaysia should be flat. As a result, we revise our FY15E Group’s FFB growth to 6% (from 15%), which is close to the sector average of 7%. However, we think the long-term outlook remains decent with revised FY16E FFB growth at 12% (from 24%), while CPO prices should improve 9% to RM2,400/MT.

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

Change to Forecasts

FY15-16E CNP cut by 7-11% to RM307-359m as we reduce our yield expectations in Malaysia and Indonesia on account of worse-than-expected dry weather impact. As per above, FY15- 16E FFB growth forecasts are reduced to 6-12% (from 15- 24%).

Rating

Maintain MARKET PERFORM

Near-term outlook is neutral, given flattish CPO price prospect and average FFB growth, in addition to the soft Johor property market outlook. However, we expect decent upside in the midlong- term as FFB growth should kick in strongly in 2H15 and FY16 due to the young average age of its plantations in Indonesia (ca.10 years).

Valuation

Our SoP-based TP is reduced to RM9.50 (from RM10.42) based on an unchanged Plantation valuation basis of 21x, implying mean valuation on GENP’s historical valuation. We think this is fair given GENP’s average near-term FFB growth outlook.

Risks to Our Call

Lower-than-expected CPO prices.

Lower-than-expected earnings from property division.

Source: Kenanga Research - 26 Aug 2015