1HFY20 CNP of RM86.1m (+37% YoY) is deemed within our (43%), but below consensus’ (32%), expectation. Management maintained its flat FY20 FFB outlook, which is in-line with our FY20E FFB growth (- 0.7% YoY). Headwinds ahead as downstream is expected to remain challenging due to demand disruption from wide POGO spread (c.USD282/MT), while impact of higher FFB to production cost may be slightly muted by higher fertilizer cost in 2HFY20. No changes to earnings estimate. Maintain UNDERPERFORM with unchanged SoP derived TP of RM8.95. At current price, it implies a CY21E PER of 33.4x (c.10% premium to peers’ average) which we think is unattractive.

1HFY20 deemed in-line. Genting Plantations Berhad (GENP)’s 1QFY20 core net profit (CNP) came in at RM11.9m (-24% YoY; -84% QoQ), bringing 1HFY20 CNP to RM86.1m (+37% YoY) which we deem within our expectation (at 43%) in view of expected sequential pick-up in earnings, but below consensus’ estimate (at 32%). 1HFY20 FFB output of 949k MT (-11% YoY) is also within our estimate at 44% (5-year average: 45%). 2QFY20 DPS of 6.0 sen was no surprise.

Results’ highlight. YoY, higher CPO/PK price (+26%/+21%) made up for a plunge in FFB output (-11%). This led to a 74% increase in plantation segmental profit, overshadowing: (i) 64% decline in downstream segmental profit, and (ii) 29% decline in property segmental profit. As a result, 1HFY20 CNP rose (37%) to RM86.1m. QoQ, 2QFY20 CNP nosedived (-84%) mainly as: (i) plantation segmental profit tumbled (-36%) on lower CPO/PK price (-11%/- 19%), and (ii) downstream registered segmental loss of RM1.0m (vs. segmental profit of RM11.4m in 1QFY20) due to MCO impact as well as wide POGO spread impacting demand.

FY20 FFB outlook still dim. Management maintained its flat FY20 FFB guidance on the back of previous adverse weather impact on production. This is in-line with our FY20E FFB growth (-0.7% YoY). Meanwhile, 1HFY20 CPO production cost was at c.RM2,010/MT and management is hopeful of costs trending lower as production recovers in 2HFY20 (peak production). However, we think that the impact of higher FFB yield to production cost may be slightly muted by higher fertilizer application in 2HFY20 (59% of full-year application). Downstream is expected to remain challenging due to the wide POGO spread of c.USD282/MT, affecting discretionary bio-diesel blending.

Having said that, we anticipate 3QFY20 earnings to improve sequentially premised on higher CPO prices (+18% QoQ) alongside higher FFB output, entering into peak production season.

No changes to earnings estimates as results were in-line.

Maintain UNDERPERFORM with an unchanged SoP-derived Target Price of RM8.95. At current price, it implies a CY21E PER of 33.4x (c.10% premium to peers’ average). This, on the back of a dim FFB outlook and high production costs, is unjustified in our view. Our TP implies CY21E PER of 30x which is more reasonable.

Source: Kenanga Research - 27 Aug 2020