9MFY20 CNP of RM153.8m (+98% YoY) is deemed within our (70%) and consensus’ (66%) expectations. Management is now expecting FY20 FFB growth to be slightly negative, in line with our expectation (-5%). Stronger upstream segment is expected to negate weaker downstream segment (wide POGO spread affecting biodiesel) and premium outlets’ performance (CMCO-led) in 4QFY20. Maintain MARKET PERFORM with unchanged SoP-derived TP of RM10.00. At current price, it implies a CY21E PER of 28.5x (c.5% premium to peers) which we think is unattractive.

9MFY20 deemed in-line. Genting Plantations Berhad (GENP)’s 3QFY20 core net profit (CNP) came in at RM67.7m, bringing 9MFY20 CNP to RM153.8m (+98% YoY) which we deem within our (70%), and consensus’ (66%) expectations. 9MFY20 FFB output of 1.49m MT (-8% YoY) falls within our estimate at 71%. Absence of DPS is as expected.

Results’ highlight. YoY-YTD, higher CPO/PK price (+26%/+23%) overshadowed the decline in FFB output (-8%). This led to a 159% increase in plantation segmental profit, outstripping: (i) a 46% decline in downstream segmental profit, and (ii) a 37% decline in property segmental profit. As a result, 9MFY20 CNP rose (98%) to RM153.8m. QoQ, 3QFY20 CNP leapt (+467%) mainly as plantation segmental profit rose (+45%) on both higher CPO/PK price (+8%/+10%) and higher FFB output (+8%). This was further boosted by improvement in downstream segment as a result of post-MCO sales volume recovery. Downstream registered segmental profit of RM9.1m in 3QFY20 (vs. loss of RM1.0m in 2QFY20).

Toned down FY20 FFB guidance. Recall that management maintained its flat FY20 FFB guidance in 2QFY20. Management has now toned down FY20 FFB guidance to slightly negative. This is in-line with our FY20E FFB growth (-5% YoY). Meanwhile, downstream segment is still expected to remain challenging due to the wide POGO spread of c.USD455/MT, affecting discretionary biodiesel blending. Due to the recent CMCO, the group’s premium outlets are expected to suffer in 4QFY20. Having said that, better upstream segment’s performance on higher CPO price is expected to negate the impact of other weaker segments. We anticipate GENP’s 4QFY20 earnings to show similar strength as in 3QFY20.

No changes to earnings estimate as results were in line.

Maintain MARKET PERFORM with an unchanged SoP-derived Target Price of RM10.00. At current price, it implies a CY21E PER of 28.5x (5% premium to large-cap peers – such as IOICORP and KLK). The slight premium could be due to GENP’s sensitivity towards CPO price (upstream – c.75% of earnings), especially during high CPO price environment. However, currently valuations are unattractive, warranting a MARKET PERFORM call due to GENP’s: (i) premium to large-cap peers despite absence of FBMKLCI status, and (ii) lower liquidity compared to its large-cap peers.

Source: Kenanga Research - 26 Nov 2020