GENP’s FY17 CNP* of RM336m met expectations at 101% of consensus and 98% of our forecast. A special dividend of 11.0 sen and final dividend of 9.5 sen was announced, for full-year DPS of 26.0 sen (dividend yield of 2.7%), well exceeding our 11.0 sen estimate. We revise up our FY18E CNP by 9%, and introduce our FY19E CNP of RM424m (+21% earnings growth). Upgrade to OUTPERFORM on higher TP of RM10.75 (from RM10.30) based on Sum-of-Parts.

FY17 within expectations. Genting Plantations Berhad (GENP) FY17 Core Net Profit (CNP*) came in at RM336m, within both consensus’ RM334m forecast and our RM342m estimate at 101% and 98%, respectively. A special dividend of 11.0 sen and final dividend of 9.5 sen was announced, for full-year DPS of 26.0 sen, implying a pay-out ratio of 62% and dividend yield of 2.7%, well above our 11.0 sen forecast. Full-year FFB production at 1.88m metric tons (MT) is also within our estimate at 95%. We gather that the special dividend was declared on stronger operating performance in Indonesia.

Production support. YoY, FY17 CNP rose 11% thanks to production recovery (+17%) and better CPO prices (+3%). While Upstream operating profit fell 22%, excluding one-off Semenyih land sale in 2016, core operating profit rose 4% to RM432m. Downstream broke even in its first operating year, while Property profits declined 14% due to lower margins seen on its affordable projects. Biotech and other businesses saw a small RM9m profit, reversing from core loss (ex-RM80m intangibles write-off) of RM13m in 2016. QoQ, CNP rose 31% on better performance across the board. Upstream EBIT rose 11% on higher FFB production (+10%), better PK prices (+14%), and marginally lower CPO prices (-2%). Downstream recorded RM4m profit from RM1m loss on better volumes on 60% refinery utilization. Property contribution improved on higher Premium Outlets contribution (+44% to RM11m). Others segments rose on forex translation gains (RM13.8m), excluding which the segment would see a small RM2m core operating profit.

Driven by Plantation upstream. Management observed that 2018 earnings would be driven by good FFB growth of 20% in FY18, inclusive of its recently acquired 12.9k planted hectares (ha) from Lee Rubber. We expect a more conservative 16-6% FFB growth in FY18- 19, taking into account the last legs of drought impact in the company’s Indonesian area, and c.2-3k replanting planned in Malaysia. Property segment will likely remain flattish as soft development progress is offset by strong performance at the Johor and Genting Highland Premium Outlet businesses. Downstream, meanwhile, should see breakeven or slight profits on the prospect of better production volume and thus better utilisation, although the planned Kretam refinery acquisition by HSPLANT could increase the level of competition for CPO in Sabah.

Increase FY18E CNP by 9% to RM358m and introduce FY19E CNP of RM434m implying earnings growth of 21%. We revise up our FY18E CNP as we raise our refinery utilization expectations.

Upgrade to OUTPERFORM with higher TP of RM10.75 (from RM10.30) based on Sum-of-Parts, as we roll forward our valuation base year to average of FY18-19E, and take into account our earnings upgrade. Our Plantations Fwd. PER is unchanged at 23.5x reflecting the average valuation for large-cap integrated planters. Considering its above-average FFB growth prospect for 2018, we believe GENP’s 16% share price correction in 2017, from a high of RM11.72 in Mar-17, has been overdone, and accordingly upgrade our call to OUTPERFORM (from MARKET PERFORM). Risks to our call include: (i) lower-than- expected refinery utilization, (ii) lower-than-expected CPO prices, and (iii) weaker-than-expected property sales.

Source: Kenanga Research - 27 Feb 2018