FY16 CNP at RM300m (ex-RM137m land sale) exceeded both our and consensus forecasts at 113% and 119%, respectively, on higher CPO and PK prices. Final dividend of 8.0 sen and special dividend of 11.0 sen announced, for full-year DPS of 21.0 sen, well above our 7.7 sen forecast. Despite the good 4Q results, FY17E earnings maintained as 1H17 could be weaker on refinery start-up cost. Maintain MP call with TP unchanged at RM12.40.

FY16 above expectations. Genting Plantations Berhad (GENP) FY16 Core Net Profit (CNP*) at RM300m exceeded both consensus RM252m and our RM265m forecasts at 119% and 113%, respectively. This was mainly due to better CPO (+24%) and PK (+60%) prices as production softened 7%, making up 99% of our full- year forecast. Note that our CNP calculations exclude one-off gains on sale of 582 acres of plantation land in Semenyih of RM136.8m, and intangibles write-off in the biotechnology sub-segment of RM80m. A final dividend of 8.0 sen coupled with a special dividend of 11.0 sen was announced, for full-year dividend of 21.0 sen. This implies a pay- out ratio of 45% and a dividend yield of 1.9%.

Supported by Plantation segment. YoY, CNP rose 46% as Plantation operating profit (ex-land sale) jumped 75% on the back of higher CPO and PK prices as mentioned earlier. Costs in Indonesia were also more favourable, as production increased 9% leading to cost per metric ton (MT) declining 14% to c.RM1,800/MT. Property operating profit, however, weakened 20% on lower property launches and lack of one-off land sales. QoQ, CNP improved 36% on the back of Plantation operating profit (ex-land sale) rising 48% on better FFB volume (+21%) coupled with higher CPO (+9%) and PK (+6%) prices. Property operating profit saw some improvement (+19%) on higher project completion.

Mixed on 1Q17. We believe GENP?s upstream business should continue to do well, given substantial maturing Indonesian area and better YTD CPO prices. However, downstream business could pose some earnings risk especially with start-up costs as we believe the new refinery may not reach optimal utilisation in the short-term unless GENP steps up purchases of external CPO. Meanwhile, Property segment is overall neutral as we expect weak property development progress to be offset by the upcoming Genting Premium Outlets (GPO) opening in 2Q17. However, the positive GPO effect will only be felt in 2Q17, hence, Property is likely to remain weak in the near-term.

Maintain FY17E CNP at RM313m as we introduce FY18E CNP of RM354m. Despite a strong final quarter, we maintain our FY17E CNP which accounts for potential weakness in 1H17 due to refinery gestation period. We would look to revise up our estimates should GENP ramp it up faster than expected, or if FY17E FFB growth comes in higher than our 21% forecast.

Reiterate MARKET PERFORM with unchanged TP of RM12.40 based on Sum-of-Parts with our Plantation target PER unchanged at 26.0x, implying mean valuation. We think this is fair as the above- average FFB growth prospect of 21% (against sector average of 7%) is offset by potentially volatile downstream performance and subdued short-term Property prospects. In view of our overall neutral outlook, we maintain our MARKET PERFORM call on GENP. Risks to our call include slower-than-expected increase in refinery utilisation, lower- than-expected CPO prices and weaker-than-expected Property sales.

Source: Kenanga Research - 23 Feb 2017