1Q19 CNP* of RM47.2m (-35% YoY; +337% QoQ) came within our expectation at 23% of our full-year forecast, but missed consensus estimate at 17%, likely due to lower-than expected CPO and PK prices. 1Q19 FFB output of 554k MT (+14% YoY; -10% QoQ) also aligned with the expectation at 23% of our full-year forecast. No dividend was declared, as expected. No changes to FY19-20E CNPs of RM201-279m. Maintain UP with unchanged TP of RM9.00.

Within our expectation but missed consensus. Genting Plantations Berhad (GENP)’s 1Q19 CNP* of RM47.2m (-35% YoY; +337% QoQ) came within our expectation at 23% of our full-year forecast, but missed consensus estimate at 17%, likely due to lower-than-expected CPO and PK prices. 1Q19 FFB output of 554k MT (+14% YoY; -10% QoQ) also aligned with our expectation at 23% of our full-year forecast of 2.37m MT (+14%). No dividend was declared, as expected.

YoY, 1Q19 Plantation EBIT tumbled 54% to RM53.0m as FFB growth of 14% failed to offset a 17% drop in the average CPO price to RM1,974/MT and a 38% plunge in the average PK price to RM1,283/MT. This was partially cushioned by a solid performance in Downstream segment, which saw EBIT turning from a loss of RM2.3m to a profit of RM19.2m, This was attributable to higher off-take in both its refinery and biodiesel operations, resulting in higher capacity utilisation at 70% (FY18: 56%) and 75% (FY18: 46%), respectively. In the Property segment, despite a 16% increase in sales (as mentioned in GENP’s conference call), revenue/EBIT was down 15/25% as the new sales were generated from early-stage projects, for which recognition is usually slower. However, profit sharing from premium outlets grew 12% as rental rates increased by 10% (mentioned in conference call). Overall, 1Q19 group CNP declined 35% to RM47.2m.

QoQ, despite a seasonal 10% drop in FFB output, 1Q19 Plantation EBIT nearly tripled as the average CPO price recovered 7%. Additionally, Downstream also performed significantly better compared to last quarter when it barely broke even, thanks to the same reason mentioned above. These sent group's CNP soaring 4.4x to RM47.2m in 1Q19 from a very low base of RM10.8m in 4Q18.

Weaker performance looms. We believe GENP could hit a soft patch in the next quarter due to depressed CPO prices and lower harvesting activities during Ramadan. In addition, Indonesian FFB production is expected to be softer due to wet weather in the country. In the Downstream segment, we believe earnings could also soften due to stiffer competition.

No changes to FY19-20E CNPs of RM201-279m as earnings were in line with expectations. Note that we had already slashed earnings by 48-38% in our sector downgrade report dated 21 May 2019.

Maintain UNDERPERFORM with an unchanged Target Price of RM9.00 based on Sum-of-Parts, with Plantation segment valued at 21.9x CY20E PER, implying -1.0SD vs. -1.0 to -2.0SD for other planters under our coverage universe. We value GENP at the higher end of the valuation basis due to its above-average FFB prospects and potential earnings recovery (partly due to a low-base effect). However, at the current level, the group’s valuation appears stretched at CY20E PER of 34.7x. Hence, we recommend investors to take profit.

Risks to our call include: (i) higher-than-expected refinery utilisation, (ii) higher-than-expected CPO prices, and (iii) stronger-than-expected property sales.

Source: Kenanga Research - 24 May 2019