1HFY21 CNP of RM183.2m (+113% YoY) is above our (59%) and consensus’ (58%) expectations. We expect sequential earnings improvement from higher FFB output and firm CPO prices. Stronger upstream will outpace weaker downstream (higher feedstock prices). Raise FY21-22E CNP by 20-7%. Maintain OUTPERFORM with a higher TP (SoP-derived) of RM8.40 (from RM7.65). GENP (share price: +14% since August) is a laggard with a reopening angle (vs. SIMEPLT’s 26%). ESG is score at 77%.

Above expectations. Genting Plantations Berhad (GENP)’s 1HFY21 core net profit (CNP) came in at RM183.2m (+113% YoY). This is above both our and consensus’ estimates at 59%/58%, due to higher CPO prices. 1HFY21 FFB output of 974k MT (+3% YoY) at 44% of our full-year estimate and DPS of 11.0 sen are as expected.

Results’ highlight. YoY, 1HFY21 CNP rose (+113%) propelled by a 130% improvement in plantation segmental profit on the back of higher average CPO/PK prices (+26%/+61%) and FFB output (+3%). QoQ, 2QFY21 CNP surged (+101%) on: (i) 74% improvement in plantation segmental profit from higher CPO/PK prices (+11%/+6%) and FFB output (+21%).

FY21E FFB growth on track. Management is keeping FY21 FFB growth guidance of 3-5% (in line with our 5%), driven by Indonesia, while ~4k Ha is expected to be replanted in Malaysia. We expect GENP’S historical 1H:2H production trend of 45:55 to continue, with peak in 4QFY21 (Oct-Nov). Higher FFB output and firm CPO prices (QTD 3QFY21: +4% QoQ) should yield sequential upstream earnings improvement in 3QFY21 which will outpace weaker downstream (high feedstock prices).

Raise FY21-22E CNP by 20-7% on higher CPO prices of RM3,000-2,800/MT (from RM2,700/MT), but reduce FY21E refinery utilization to 50% (from 65%).

Maintain OUTPERFORM with a higher TP of RM8.40 (from RM7.65) post earnings upgrade. Our TP implies FY22E PER of ~20x (-1.25SD from mean). Although GENP’s share price has risen ~14% from August’s low, it is still a laggard compared to SIMEPLT’s 26% rally – while offering a reopening angle play in the form of its premium outlets. Strong footfall from the eventual new Genting theme park could also be a catalyst. ESG score is at 77%.

Risks to our call include: (i) lower-than-expected CPO prices, (ii) prolonged lockdowns, and (iii) a precipitous rise in labour/fertiliser/transport and other cost.

Source: Kenanga Research - 26 Aug 2021