Genting Plantations Berhad (GENP) 1H17 Core Net Profit (CNP*) at RM154m came in below consensus at 41% but within our forecast at 49%, possibly on more optimistic production growth forecast by the street. An interim dividend of 5.5 sen was announced, within expectation. No change to FY17-18E CNPs of RM313-356m. Maintain MARKET PERFORM with unchanged TP of RM11.00 based on Sum-of-Parts.

1H17 misses consensus; within our forecast. 1H17 CNP at RM154m missed consensus expectations at 41% of RM371m, while meeting our forecast at 49% of RM313m. This could possibly be due to highly optimistic production expectations from the street. 1H17 FFB production at 862k metric tons (MT) was broadly within our expectation at 44%. An interim dividend of 5.5 sen was declared, in line with our and consensus 10.0 sen forecasts.

Upstream recovery. YoY, 1H17 CNP doubled (+110%) with strong upstream EBIT (+126%) on the back of stronger CPO prices (+17%) and higher FFB production (+34%) though Property contribution was softer (-24%) on declining unbilled sales. The new Downstream refining business made borderline losses (RM3m) on low utilization (c.40%). QoQ, CNP was flat (+1%) on slightly weaker upstream performance (- 3%) as impact of lower CPO prices (-12%) was offset by better FFB production (+13%). Property earnings improved 31% from a low base to RM12m on higher recognition of unbilled sales, while Downstream remained at the borderline with RM1m losses.

Stronger Plantations offsets lackluster Property segment. Management in its analyst conference call noted that full-year group production should improve by double digits, with single-digit growth in Malaysia and >50% growth in Indonesia. This is in line with our FY17- 18E FFB growth estimate of 22-10%. Downstream earnings should remain near break-even, though we gather that GENP will maintain its efforts to improve utilization at its new refinery, while maintaining its biodiesel production in Sabah to support the B7 mandate. For the Property division, development contribution may remain soft as the company maintains its launch units but at a more affordable price range. However, the Premium Outlets business should record good growth with the opening of Genting Highlands Premium Outlets.

Maintain FY17-18E CNPs at RM313-356m as we deem the results as within expectations.

Unchanged MARKET PERFORM call with TP of RM11.00 based on Sum-of-Parts. Our Plantations Fwd. PER is unchanged at 23.5x reflecting the average valuation for large-cap integrated planters. In the Plantation business, we expect earnings to be driven largely by upstream production growth and supportive prices, while Premium Outlets contribution should see good YoY growth. Downstream contribution is likely to remain close to breakeven, while Property development may remain weak on lackluster demand in Johor.

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 - 24 Aug 2017