FY19 CNP came in at RM140.2m (-2% YoY) above our (118%), but within consensus’ (99%), estimate. Positive deviation was mainly due to better-than-expected utilization from its downstream division of c.80% (vs. our assumption of 65%). FY19 DPS of 13.0 sen was a pleasant surprise. Moving forward, FY20E FFB growth of 5% and uptick in upstream division will make up for decline in downstream and premium outlets. Fine-tune FY20E CNP (-2%) due to housekeeping and introduce FY21E CNP of RM383m. Reiterate OUTPERFORM with unchanged TP of RM12.10. At current price, it implies CY20E PER of 26x (-0.5SD) which is unjustified.

Above our, within consensus, estimate. Genting Plantations Berhad (GENP)’s 4FYQ19 core net profit (CNP) came in at RM62.6m (+480% YoY; +326% QoQ), bringing FY19 CNP to RM140.2m (-2% YoY), above our estimate at 118%, but within consensus’ estimate at 99%. Positive deviation from our figures was mainly due to better-then expected utilization from downstream division of c.80% (vs. our assumption of 65%). Meanwhile, FY19 FFB output of 2.19m MT is within our expectation at 98%. FY19 DPS of 13.0 sen (4QFY19: 9.5 sen) was a pleasant surprise.

Results’ highlight. YoY, FY19 CNP fell (-14%) mainly due to lower CPO/PK prices (-3%/-30%), overshadowing a 5% increase in FFB output. This resulted in a 39% decline in Plantation EBIT to RM126.6m. The impact was partially cushioned by solid performance in Downstream segment of RM47.3m (vs. RM0.2m in FY18), on the back of higher off-take in both its refinery and biodiesel operations. QoQ,

4QFY19 CNP leapt (+326%) riding on: (i) higher average CPO/PK prices (+16%/+13%), (ii) higher FFB output (+6%), and (iii) further EBIT improvement in its downstream segment (+53%).

FFB growth expected in FY20. Management expects FFB output in FY20 to be affected by the lagged impact from the dry weather in 2019. Still, management sees group FFB growth for FY20, at 5%, which is commendable. Meanwhile, given the adverse impact of COVID-19 and negative POGO spread, GENP’s downstream is expected to operate in a challenging environment. In light of this, we are leaving FY20E downstream utilization unchanged at 65%. Similarly affected by COVID-19, contribution from its premium outlets are expected to dip slightly as number of visitors is expected to decline. Having said that, from what we gathered from management, the visitors decline so far is not alarming considering the seasonal decline post Chinese New Year. Regardless, we believe the uptick in upstream should more than make up for the loss in its downstream division and premium outlets. We anticipate 1QFY20 earnings (QTD-1QFY20 CPO price: +15%) to set a benchmark for subsequent earnings in FY20 as average price realized should better reflect current CPO price of c.RM2,700/MT. Our CY20 CPO price forecast of RM2,700/MT remains.

Fine-tune FY20E CNP by -2% due to housekeeping and introduce FY21E CNP of RM383m on FY21E FFB growth of 5.2%.

Reiterate OUTPERFORM with an unchanged SoP-derived Target Price of RM12.10. At current price, it implies CY20E PER of only 26x (-0.5SD), which we believe is unjustified given: (i) earnings growth expected to more than double in FY20, (ii) highest FFB growth prospect of 5% (among big cap peers) allowing it to capitalize on the CPO price rally, and (iii) stable contribution from premium outlets (with expected further growth upon opening of theme park)

Source: Kenanga Research - 27 Feb 2020