• 1HFY17 earnings likely to be broadly within expectation

• Estimating 2QFY17 core net income of RM60m to RM70m

• Weaker earnings on quarterly basis

• Positive earnings and FFB production outlook

• Maintain Neutral with unchanged TP of RM11.55

1HFY17 earnings likely to be broadly within expectation. Genting Plantations Berhad (GENP) is expected to release its 2QFY17 results this month. We estimate that 1HFY17 core net profit of GENP to be in the range of RM140m-RM150m which should come in broadly within consensus expectation.

Estimating 2QFY17 core net income of RM60m to RM70m. We expect the upcoming 2QFY17 core net profit of GENP to be in the range of RM60m to RM70m, a sharp increase from core net income of RM35.9m in 2QFY16. The expected increase in earnings is mainly due to increase in FFB production (+38.3%yoy to 456k MT) and higher CPO prices. Note that CPO prices quoted by MPOB in 2Q2017 climbed 5.6%yoy to RM2747/mt. Cumulatively, 1HFY17 core net income is estimated in the range of RM140m-RM150m, close to doubling core net income of RM71.6m in 1HFY16. The estimated higher core net income is primarily due to double-blessing of higher FFB production (+33.5%yoy to 862k MT) and higher CPO prices (+18.0%yoy).

Weaker earnings on quarterly basis. On sequential basis, the estimated core net income of RM60m to RM70m in 2QFY17 is expected to be weaker than core net income of RM82.2m in 1QFY17. We forecast the 12.3%qoq increase in FFB production is unable to compensate the 12.8%qoq decline in CPO prices. On property division front, we are expecting tepid earnings performance due to the subdued property market in Johor.

Positive earnings and FFB production outlook. Prospect for FFB production in FY17 is positive as FFB production recovers from lagged impact of drought. We are forecasting production growth rate of 13.0% for FY17, in line with management expectation of double digit growth rate in FY17. As such, we are keeping our FY17 earnings forecast of RM338m implying a 12.7% growth.

Maintain Neutral with unchanged TP of RM11.55. We maintain our TP of RM11.55, based on sum-of-parts valuation. While outlook for earnings is positive, valuation of GENP is rich at forward PER of 25.2x of FY17 EPS. Hence, we maintain Neutral recommendation of GENP.

Source: MIDF Research - 9 Aug 2017