Kenanga Research & Investment

Genting Plantations - Lower Cost, Better Property Profits Ahead

Publish date: Thu, 29 Feb 2024, 11:04 AM

GENP’s FY23 results met our forecast but disappointed the market.  Its 4QFY23 core net profit was softer QoQ and YoY due to cost staying stickier. On firm CPO prices and brighter property outlook, we raise our FY24F core net profit forecast by 2%, lift our TP by 5% to RM6.00 (from RM5.70) but maintain our MARKET PERFORM call.

GENP’s FY23 core net profit of RM252m (-46% YoY) (excluding land disposal gains (RM10.1m), impairment and fair value charges (RM4m) and forex loss (RM4.5m)) met our forecast but missed the consensus estimate by 8%. A final dividend of 4.0 sen and special dividend of 9.0 sen were declared which bring the full 12-month dividends to 21.0 sen for FY23, lower than last year’s DPS of 34.0 sen which also included a special dividend but higher at 15.0 sen then.

Its 4QFY23 core net profit weakened to RM65m (-22% QoQ, -10% YoY) largely on stickier CPO cost whereas CPO price of RM3,395 per MT (-0.4% QoQ, -6% YoY) was flattish and FFB output of 577k MT (- 1% QoQ, +9% YoY) came very much in line with our estimate. Its 4Q downstream losses and improved property earnings were also in tune with our estimates. It ended FY23 with a net debt of RM1,024m (19% net gearing) compared to RM1,114m in Sept 2023.

Firm CPO prices expected for FY24-25. Minimal global edible oil inventory build-up is likely in 2024 and, possibly, till mid-2025 as production is expected to only match (potentially trailing) likely demand growth of 3%-4% YoY. As such, edible oil prices (including CPO) can be volatile due to unexpected surprises, from poor weather to shipping disruptions or changing biodiesel blending policy. We are maintaining CPO price forecasts of RM3,800 per MT over FY24-25F but with half its crop from Indonesia which are sold at lower prices, GENP’s average CPO should hover closer to RM3,500 per MT over FY24-25.

Lower production cost, albeit modest. Fertiliser cost has dipped by 20%-30% YoY and so has diesel. FFB production is also normalising as guest workers return to Malaysia while El Nino is largely muted. Meanwhile, GENP’s Indonesian palm trees are entering their prime productive age, which is supportive of annual output growth of 3%-5% over FY24-25. Weak palm kernel (PK) prices since mid-2022 has likely bottomed out and we expect demand to start creeping up in late FY24 which in turn will help contain CPO cost further.

More property contribution likely, not just from the opening of Premium Outlet in Jakarta scheduled for late FY25 but from demand for Kulai properties, a growing suburb of Johor Bahru and demand for industrial unit and lands in Batu Pahat, Johor.

Forecasts. We raise our FY24F net profit forecast by 2% largely on easier cost and growing property contributions which should continue into FY25 for which we are introducing an expected Core EPS of 36.1 sen.

Valuations. Accordingly, we raise our TP by 5% to RM6.00 (from RM5.70) on 1.0x PBV which is in line with the plantation sector 1-2x PBV range. There is no adjustment to our TP based on ESG given a 3- star rating as appraised by us (see Page 3). Maintain MARKET PERFORM.

Risks to our call include: (i) weather impact on edible oil supply, (ii) unfavourable commodity prices fluctuations, and (iii) production cost inflation.

Source: Kenanga Research - 29 Feb 2024

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