1QFY21 CNP of RM60.8m (-28% QoQ; -18% YoY) is deemed within our (19%) and consensus’ (19%) expectations. Downstream will remain challenging due to wide palm oil-gasoil spread. However, we expect sequential earnings improvement in 2QFY21 as weaker downstream will be overshadowed by stronger upstream on higher CPO prices and production recovery. Maintain MP with a lower ESG- adjusted TP (SoP-derived) of RM8.65. Current price implies FY21E PER of 23.8x (c.30% premium to large-cap upstream peer) which we think is unappealing.

1QFY21 deemed within expectations. Genting Plantations Berhad (GENP)’s 1QFY21 core net profit (CNP) came in at RM60.8m (-28% QoQ; -18% YoY). This is deemed within both our and consensus’ estimates at 19% each, as we anticipate sequential earnings improvements on higher CPO prices and production recovery. 1QFY21 FFB output of 441k MT (-2% YoY), at 20% of our full-year estimate and the absence of dividend are as expected.

Results’ highlight. YoY, despite higher CPO/PK price (+11%/+41%), 1QFY21 CNP declined (-18%) mainly dragged by downstream segmental loss of RM8.8m (vs. downstream segmental profit of RM11.4m). QoQ, 1QFY21 CNP fell (-28%) on: (i) downstream losses, and (ii) plunge in plantation segmental profit (-26%) as lower FFB output (-26%) overwhelmed higher CPO/PK price (+13%/+30%).

Management is maintaining FY21E FFB growth at 5%, in line with our 5% forecast. Growth will be driven by Indonesia (younger trees) as c.4k Ha is expected to be replanted in Malaysia. Meanwhile, downstream segment is still expected to remain challenging due to: (i) Indonesia refineries’ advantage over Malaysia (biodiesel levy and export tax structure), and (ii) the wide POGO spread of >USD500/MT, affecting discretionary biodiesel blending. Having said that, we expect sequential earnings improvement as better upstream segment’s performance on higher CPO price (QTD 2QFY21: +13% QoQ) and production recovery are expected to outpace the impact of other weaker segments.

No changes to earnings estimates.

Maintain MARKET PERFORM with a lower ESG-adjusted TP of RM8.65 (from RM8.95). Currently trading at FY21E PER of 23.8x, we think valuations are unappealing as it represents a 30% premium to large-cap upstream-centric peer SIMEPLT. Based on our in-house ESG scoring, GENP ranks fifth with a score of 77%. Risks to our call are: sharp rise/fall in CPO prices and a precipitous increase/decline in fertiliser/labour/transportation costs.

Source: Kenanga Research - 25 May 2021