FY18 CNP* of RM143m (-57% YoY) fell short of our forecast by 11% and consensus by 34%, due to lower-than-expected CPO price and labour rationalisation expense. FY18 FFB growth of 11% failed to offset a 22% drop in CPO price. A final dividend of 8.25 sen brought full-year dividend to 13.0 sen, slightly above our 11.0 sen forecast. Trim FY19E CNP by 7% to RM383m and introduce FY20E CNP of RM451m. Downgrade to UNDERPERFORM with a lower TP of RM9.80.

Below expectations. Genting Plantations Berhad (GENP)’s FY18 CNP* of RM143m (-57% YoY) missed our forecast by 11% and consensus estimate by a sharp 34%, largely attributable to lower-thanexpected CPO price (RM2,117/MT vs. our RM2,150/MT assumption) and a labour rationalisation expense of c.RM6m booked in 4Q18. This is the second consecutive quarter of earnings disappointment. FY18 FFB output of 2.08m MT (+11%) came within our full-year forecast of 2.11m MT. A final dividend of 8.25 sen was declared, bringing full-year dividend to 13.0 sen, slightly above our 11.0 sen forecast.

YoY, FY18 CNP tumbled 57% to RM143m as FFB growth of 11% failed to offset a 22% drop in the average CPO price to RM2,117/MT and a 31% plunge in the average PK price to RM1,681/MT, causing the Plantation segment’s operating profit to decline 34% to RM207m. This was cushioned by a 135% increase in the Property segment’s operating profit to RM80m, fueled by full-year contribution of Genting Highlands Premium Outlets (GPO; opened in June 2017) and new launches of 124 residential units (ASP >RM600k) under the Genting IndahPurah project in Kulai. Meanwhile, the Downstream segment turned to an operating profit of RM0.2m from an operating loss RM3.9m in FY17 due to higher off-take in both its refinery and biodiesel operations, resulting in higher capacity utilisation at 56% (FY17: 46%) and 46% (FY17: 26%), respectively.

QoQ, despite 21% growth in FFB output, 4Q18 CNP plunged 52% as the average CPO price declined 10% to RM1,848/MT and the average PK price fell 16% to RM1,357/MT. Notwithstanding cheaper feedstock, the Downstream segment barely broke even this quarter vs. RM0.6m in 3Q18 due to stiffer competition. Property segment’s profit also fell 21% to RM21m with the absence of property launches in 4Q18.

Trim FY19E CNP by 7% to RM383m and introduce FY20E CNP of RM451m. We have raised FY19 fertiliser cost growth assumption from 5% to 12% and labour cost growth assumption from 5% to 8% as per management’s guidance. We have also accounted for the RM14m annual cost savings from the labour rationalization exercise.

Downgrade to UNDERPERFORM with a lower TP of RM9.80 (from OUTPERFORM and TP of RM10.50) based on Sum-of-Parts, with Plantation segment valued at 21.9x Fwd. PER, reflecting its FY19E FFB growth prospects of 14% (vs. industry average of 5%) and its midlarge cap status. The TP implies a Fwd. PER of 22.4x (-1.0SD), compared with other peers whose valuations are generally pegged at 1.5-2.5 SD below mean. Despite above-average FFB prospects and potential earnings recovery (which is partly due to a low-base effect), GENP appears expensive at 24.3x. We reckon this is a good opportunity for investors to take profit, as GENP’s share price has already recovered 17% from 2018’s low of RM9.06 (6 July 2018). Refer overleaf for company outlook.

Source: Kenanga Research - 27 Feb 2019