INVESTMENT HIGHLIGHTS

• 9MFY16 earnings broadly within expectations

• Higher sequential earnings

• Higher cumulative earnings

• Maintain Neutral with unchanged TP of RM9.72

9MFY16 earnings broadly within expectations. Genting Plantations Berhad (GENP) 9MFY16 core net earnings of RM168m was broadly within expectations, meeting 82% and 69% of our and consensus full year estimates.

Higher sequential earnings. Core net income for 2QFY16 more than doubled qoq, climbing 167%qoq to RM96m on the back of higher topline (+28%qoq). The higher sequential earnings were mainly driven by higher earnings contribution from plantation division. Profit before tax (PBT) of plantation division increased 119%qoq mainly due to higher FFB production (+33%qoq to 438k MT) while CPO prices were flattish. The strong sequential growth in FFB suggests FFB production is recovering from lagged impact of drought. Notably, Indonesian operations returned to the black as compared to losses in the previous quarter mainly due to normalising manuring cost and higher FFB production.

Higher cumulative earnings. On a yearly basis, 3QFY16 core net profit is higher by growing at 188%yoy due to higher CPO prices which offset weaker FFB production. That brought cumulative 9MFY16 core net profit to RM168m (+15%yoy). The higher earnings were mainly contributed by the higher CPO prices which more than enough to offset the lower FFB production. 9MFY16 FFB production declined 12%yoy due to adverse impact of dry weather. Meanwhile, PBT of property division eased 37%yoy as last year’s earnings were boosted by land sales while property market backdrop in Johor remains challenging.

Maintain Neutral with unchanged TP of RM9.72. We maintain our earnings forecast for FY16/17. We are also keeping our assumption of 5% FFB production contraction which is also in line with management expectation of 5%-6% production decline. Our TP of RM9.72 is based on sum-of-parts valuation. Maintain Neutral on GENP as upside may be limited by its rich valuation whilst downside is supported by the good fundamental with young oil palm profile (with 30% immature oil palm) which suggests good long-term FFB production growth prospect.

Source: MIDF Research - 25 Nov 2016