Genting Plantations Berhad (GENP) 1Q17 Core Net Profit (CNP*) at RM84m came in within consensus and our forecast at 23% and 27%, respectively. No dividend was announced, as expected. Maintain our FY17-18E CNP of RM313-354m. We reiterate our MARKET PERFORM call with no change to our TP of RM12.40 based on SoP.

1Q17 within expectations. GENP recorded 1Q17 CNP of RM84m, within expectations at 23% of consensus? RM366m forecast, and 27% of our RM313m estimate. FFB production at 405k metric tonnes (MT) were within our 1.97m MT estimate at 21%. No dividend was announced, as expected.

Strong price & production push. YoY, CNP jumped 1.4x on the back of higher FFB production (+29%) combined with increased CPO (+34%) and PK prices (+66%). Downstream refining operations began during the quarter, though the segment saw slight losses (RM2m) due to low start-up utilization. Property EBIT contribution halved (-45%) on slower demand and lower launches, as well as higher pre-operating costs for the upcoming Genting Premium Outlets (GPO). QoQ, CNP weakened 37% as Plantation EBIT (ex- land sale of RM136.8m) declined 36% due to seasonally weaker FFB production (-24%), though this was partly offset by higher CPO (+7%) and PK (+11%) prices. Meanwhile, Property contribution halved (-51%) on lower sales recognition and higher cost at GPO.

Neutral prospects. While upstream segment growth prospects remain bright, we are less optimistic on the refining and property businesses on slower ramp-ups. Management noted that Malaysian FFB production should see flat-to-single digit production growth, while Indonesia should see upwards of 30% production growth, for full-year growth exceeding 15%. This is in line with our own estimate of 22% full-year production growth and well above the sector average of 8%. However, we think the downstream refining side could continue registering losses as the refinery may not reach optimal utilization unless GENP strongly steps up external CPO purchases. Meanwhile, we understand that GPO is slated to begin operations in Jun-17, which indicates stronger benefits to the Property business in 3Q17, rather than in 2Q17, as previously mentioned. Hence, we expect property contributions to remain muted in the near term.

Maintain FY17-18ECNP at RM313-354m, as we deem the results within expectations.

Reiterate MARKET PERFORM with an unchanged TP of RM12.40 based on Sum-of-Parts. We roll forward our valuation base year to average FY17-18E (from FY17E), while Plantation target PER is kept unchanged at 26.0x, implying mean valuation. We think this is fair as the above-average FFB growth prospect (22% vs. sector average of 8%) is offset by potentially weak near-term downstream and property outlook. Hence, we reiterate our MARKET PERFORM call on GENP.

Risks to our call include (i) slower-than-expected pick up in refinery utilization, (ii) lower-than-expected CPO prices, and (iii) weaker- than-expected property sales.

Source: Kenanga Research - 30 May 2017