Genting Plantations Berhad (GENP)’s 9M17 Core Net Profit (CNP*) of RM233m made up 69% and 68% of consensus and our estimates, respectively. We deem the results broadly within expectations as GENP’s FFB production tends to be highest in the 4Q. No dividend was announced, as expected. We maintain our FY17-18E CNP. Reiterate MARKET PERFORM with unchanged TP of RM10.30 based on Sum-of- Parts.

9M17 broadly within expectations. 9M17 CNP came in at RM233m, making up 69% of consensus’ RM337m and 68% of our RM342m estimate. FFB production at 1.35m metric tons (MT) made up 68% of our forecast. We deem this broadly within expectations as we expect earnings improvement in 4Q17. We observe that the 5-year historical average production in 4Q made up 31% of full-year output, while average 4Q CNP, likewise, accounted for 36% of full-year profit. No dividend was announced, as expected.

Solid production growth. YoY, 9M17 CNP improved 37% thanks to good upstream growth (+41%) as higher FFB production (+25%) was complemented by better CPO (+10%) and PK (+4%) prices. Management in its quarterly briefing call observed excellent FFB growth in Indonesia of +70% to 491k MT on maturing young area, while Malaysia saw modest recovery of +7% to 858k MT. Other segments were more lackluster as Downstream contribution remained slightly negative on below breakeven utilization, while Property operating profit softened 22% on lower profit recognition from early-stage projects. QoQ, CNP was flattish (+2%), in line with upstream performance (+2%) as FFB production improvement (+7%) was offset by softer CPO prices (-3%) and slightly higher Indonesian cost due to higher fertilizer expense. Downstream loss was unchanged at c.RM1m, while Property contribution was, likewise, flat at RM13m (+5%).

Production upside, price downside. Management in their conference call pointed out that higher production expectation, particularly for Indonesia, would lead to more downside than upside for CPO prices in the coming year, which could partly offset the continued strong growth expectation in Indonesia, after including GENP’s recent acquisition of Lee Rubber estates. On its refining business, we understand that management hopes to improve its utilization to c.60% which we think should lead to marginal profitability on better logistics efficiency and economies of scale. While the Property development market could remain lackluster, we gather that the new Genting Premium Outlet is performing very well – comparable to, if not better than, Johor Premium Outlet sales performance. This should help support the Property segment profit over the coming quarters.

Maintain FY17-18E CNP at RM342-327m as we deem the results broadly within expectations.

Reiterate MARKET PERFORM with unchanged TP of RM10.30 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, continued strong FFB growth should offset a softer price outlook, while downstream performance should gradually improve with better utilization. Meanwhile, Property earnings should be supported by the well-received Premium Outlet stores. However, 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 - 23 Nov 2017