FY21 Core Net Profit (CNP) of RM402m (+69% YoY) came in 3% within our, and 20% under consensus’, expectation. Strong CPO prices in 4QFY21 more than made up for the FFB weakness and helped lifted overall FY21 earnings. With strong CPO outlook for FY22 and forecast 5% YoY FFB growth, we are raising FY22E Core EPS by 55% to 62.9 sen. Having declared 43% higher dividend of 30.0 sen for FY21 (including a 15.0 sen special dividend), we continue to expect good dividend ahead. Maintain OUTPERFORM with higher TP of RM10.00 (from RM8.40) derived using Sum-of- Parts (SoP).

Above expectations: The main driver of higher 4QFY21 and FY21 CNP for Genting Plantations (GENP) was strong commodity prices. The average CPO price for FY21 stood at RM3,444 per MT (+37% YoY) while 4QFY21 achieved even higher prices average of RM4,007 (+14% QoQ, +55% YoY). FFB output actually slipped 3% YoY to 2.017m MT for the full year while 4QFY21 output of 0.515m MT fared worse YoY, down by 14% and also weaker by 3% QoQ. Nevertheless, stronger earnings and cashflows helped halved net debt from RM1,644m (33% net gearing) to RM880m (17% net gearing). A final dividend of 9.0 sen was also declared along with a 15.0 sen special dividend, which brings the cumulative full-year DPS to 30.0 sen (vs. 21.0 sen in FY20).

Stronger CNP for FY22-23: International edible oil & fats traders had earlier expected good South America soyabean harvest in early 2022 to ease supply after 2021 ended with only marginally higher inventories YoY. However, dry weather in Brazil had dashed such hopes with output trimmed by 5-10%. Meanwhile, palm oil production in Malaysia is still hampered by labour shortfall which leaves 2H 2022 US soyabean harvest and seasonally better palm output to meaningfully ease supply tightness. As such, CPO prices are likely to stay higher and longer than we had earlier anticipated. CPO prices for GENP should now average at RM4,000 per MT for FY22 (RM3,400 previously) and RM3,500 for FY23 (up from RM3,000).

After two years of weak output coupled with more Indonesia area coming into maturity as well as into prime production, FY22 FFB yield is expected to recover by 8% YoY in FY22 and 2% YoY in FY23. 15-18% (circa 25K Ha) of the Group’s own planted area (i.e. excluding Plasma) remains immature even though overall planted area has stagnated at 159k Ha since 2017 (including 20K Ha of planted Plasma). Downstream margins are expected to hold steady but property earnings should improve YoY along with contributions from Premium Outlets which is set to recover as the Malaysia retail as well as travel and tourism environment normalise. Premium Outlets footfall of 1.5m visitors in FY21 should gradually revert to the 4m annual footfall over FY22-23 along with its share of earnings.

Altogether, we are revising up FY22E Core EPS by 55% to 62.9 sen and FY23E Core EPS by 36% to 55.4 sen.. We are also expecting flattish DPS of 30.0 sen and 28.0 sen for FY22-23, respectively, thanks to strong cashflows underpinned by elevated CPO prices as well as decent FFB output growth.

Maintain OUTPERFORM but raising our TP from RM8.40 to RM10.00 based on SoPThe coming to maturity and expanding productive area in Indonesia should continue to support its upstream earnings while the ongoing economic recovery should slowly lift property and Premium Outlets’ earnings. GENP’s ESG score is at 77%.

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

Source: Kenanga Research - 24 Feb 2022