Period

3Q15/9M15

Actual vs. Expectations

Genting Plantations (GENP)’s 9M15 core net profit (CNP*) of RM142m missed both consensus’ forecast (RM261m) and ours (RM307m), making up only 55% and 46% of full-year forecasts, respectively.

The variation was mainly due to lower CPO prices (-13% to RM2,142/metric ton (MT). Property sales were also weaker YoY (-20% to RM140m) owing to softer demand in Johor.

Dividends

No dividend was announced, as expected.

Key Results Highlights

YoY, 9M15 CNP dropped 40% to RM142m as Plantation segment’s EBIT declined 41% to RM175m as slightly higher FFB production (+4% to 1.23m MT) failed to offset lower CPO prices (-13% to RM2,142/MT). Property EBIT was also weaker (-13% to RM59m) due to the softer Johor property demand.

QoQ, 3Q15 CNP declined 27% to RM33m mainly on lower Plantation segment’s EBIT (-20% to RM51m) as weaker CPO prices (-6% to RM2,036/MT) coupled with higher costs from new plantings (+55% to 1.4k ha) cut into margins which declined 20% (from 26% in 2Q15). However, Property EBIT doubled to RM16m on higher commercial property sales in Genting Indahpura.

Outlook

The outlook for the Plantation sector is slightly negative. On the positive side, CPO prices are likely to improve in FY16 (+9% to RM2,400/MT). However, on the negative side, management expects dry weather impact in Sabah and Kalimantan to hit FFB production in 1Q16 and 3Q16. As a result, we revise down our FY16E FFB growth in Malaysia to - 3% (from +2%) and Indonesia to +40% (from +45%) for combined growth of 8% (from 12%). Furthermore, we gather that the weaker ringgit and rupiah could increase fertiliser cost by some 10-11% in FY16.

Property outlook is neutral. Although we are positive on the Johor Premium Outlet business heading into the 4Q seasonal peak, we think near-term property sales will be weaker than FY14 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 28-14% to RM221-310m. For FY15E, we reduce FY15E property sales assumptions by 25% to RM260m, while for FY16E, we impute lower yields and higher fertiliser cost as discussed above.

Rating

Maintain UNDERPERFORM

Near-term property prospects are dampened by a soft Johor market outlook, while plantation upside from higher CPO prices could be limited by softer yields and higher fertiliser costs. Thus, we reiterate our UNDERPERFORM call on GENP.

Valuation

Our SoP-based TP is reduced to RM9.40 (from RM9.50) based on an unchanged plantation valuation basis of 21x, although we roll forward plantation’s valuation base year to FY16E (from average FY15-16E). Our TP of RM9.40 implies 23.0x Fwd. PER which is close to +0.5SD valuation. We think this is fair as GENP’s FY16E FFB growth at 8% is still slightly above sector average (+6%).

Risks

Lower-than-expected CPO prices.

Lower-than-expected earnings from property division.

Source: Kenanga Research - 26 Nov 2015