Genting Plantations Berhad Maintain NEUTRAL

Ended FY16 on a positive note Revised Target Price: RM11.55 (Previously: RM11.50)

INVESTMENT HIGHLIGHTS

• FY16 earnings above expectations

• Strong sequential earnings

• Higher earnings in FY16

• Maintain Neutral with a revised TP of RM11.55

FY16 earnings above expectations. Genting Plantations Berhad (GENP) FY16 core net earnings of RM300.4m was above expectations, meeting 113% and 118% of our and consensus full year estimates. The positive deviation could be attributed to the lower-than-expected cost of production in 4QFY16. GENP declared special dividend of 11sen per share and proposed dividend of 8sen per share, bringing total dividend in FY16 to 21sen or dividend yield of 1.9%.

Strong sequential earnings. On a sequential basis, core net income for 4QFY16 increased by 38%qoq to RM132.7m mainly driven by improved earnings contribution from plantation segment. Profit before tax (PBT) of plantation division climbed 46%qoq due to higher FFB production (+21%qoq) and higher CPO prices (+9%qoq). FFB production continues to recover in 4QFY16 after suffering from lagged impact of drought in 1HFY16. Meanwhile, its Indonesian operations registered improving PBT (+212%qoq) due to similar reasons.

Higher earnings in FY16. On a yearly basis, 4QFY16 core net profit grew 108%yoy, bringing cumulative earnings to RM300.4m (+43%yoy). The improved earnings in FY16 was mainly due to better performance of plantation division which offset weaker earnings of property division. Plantation division was mainly buoyed by higher CPO prices (+24%yoy) which more than enough to mitigate the 7% decline in FY16 FFB production (due to adverse impact of dry weather). Looking ahead, management is looking at production growth rate of double digit in FY17, which is in line with our production growth estimate of 13% for FY17. Meanwhile, PBT of property division declined 31%yoy in the absence of land sales.

Maintain Neutral with a revised TP of RM11.55. We revise upwards our FY17 earnings by 2% to take into account the lower cost of production. Correspondingly, our TP has been revised upwards to RM11.55 from RM11.50, based on sum-of-parts valuation. Despite the good FFB production prospect, we opine that its rich valuation may limit its upside. Hence, we maintain our Neutral on GENP

Source: MIDF Research - 23 Feb 2017