Period

4Q15/FY15

Actual vs. Expectations

Genting Plantations (GENP)’s FY15 core net profit (CNP*) of RM206m came within expectations, making up 98% of consensus full-year estimate and 95% of ours.

Dividends

A final dividend of 3.0 sen was announced for FY15 DPS of 5.5 sen, below our expected 7.3 sen, for an implied payout ratio of 22% vs. our assumption of 25% payout.

Key Results Highlights

YoY, FY15 CNP fell 46% to RM206m on weaker Plantation segment EBIT (-41% to RM237m) as moderate FFB growth (+4% to 1.72m metric tons (MT)) failed to offset lower CPO prices (-11% to RM2,122/MT). Property EBIT was also weaker (-49% to RM79m on lower revenue due to softer sales in Johor.

QoQ, 4Q15 CNP recovered 92% to RM64m as Plantation EBIT rose 21% to RM62m on stronger FFB volume (+7% to 500k MT) and higher CPO prices (+2% to RM2,081/MT). Property EBIT improved 22% to RM20m on as revenue increased 23% to RM48m.

Outlook

We are neutral on the Plantation segment as upside to CPO prices could be moderated by the lower selling prices in Indonesia due to the palm oil levy imposed in mid-2015. Meanwhile, FY16E FFB growth at 7.5% is only slightly above sector average (6.0%) as Malaysian growth is likely to be softer due to lagged drought impact from 2015.

Property outlook is likely to remain weak. We expect flat-to-lower property sales heading into 2016 owing to the poor sentiment seen in the Johor property market (c.70% of property landbank).

Change to Forecasts

No change to our FY16E CNP of RM310m as we introduce our FY17E CNP of RM334m.

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 an average FFB growth outlook.

Valuation

Our SoP-based TP is increased to RM11.30 (from RM9.40) as we update our Plantation valuation basis to 26.0x (from 21.0x), implying mean valuation on GENP’s 3-year average PER of 26.2x. We believe this is justified by GENP’s average FFB growth outlook, while long-term upside is positive on rising CPO prices, maturing Indonesian landbank, and ongoing downstream expansion. We also note that GENP currently trades at a Fwd. PER of 26.9x, exceeding both IOICORP and KLK’s CY16E valuation of 23.0x, which indicates that most positives could have already been priced in.

Risks to Our Call

Better-than-expected CPO prices.

Higher-than-expected earnings from property division.

Source: Kenanga Research - 23 Feb 2016