4Q15/FY15
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.
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.
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.
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).
No change to our FY16E CNP of RM310m as we introduce our FY17E CNP of RM334m.
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.
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.
Better-than-expected CPO prices.
Higher-than-expected earnings from property division.
Source: Kenanga Research - 23 Feb 2016
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