INVESTMENT HIGHLIGHTS

• FY18 core earnings of RM169.0m came in below ours and consensus expectations

• It was mainly attributed to weaker-than-expected ASP of CPO, especially in 4QFY18

• Earnings revised downwards for FY19 in view of thinning margin due to lower blended ASP

• Lower-than-expected dividend of 13sen per share for FY18, -50% lower than 26sen per share in FY17.

• Downgrade to SELL with a lower TP of RM8.10

FY18 core earnings below expectations. Genting Plantations Berhad’s (GENP) FY18 normalised earnings of RM169.0m was below expectation as it makes up 63.1% and 77.9% of both ours and consensus full year earnings forecasts. This was mainly due to the weaker-than-expected average selling price of CPO as there was a global supply glut, resulting from record high productions, which demand was not able to keep pace with.

Weaker-than-expected margin. FY18’s core earnings plunged by almost -50.0%yoy to RM169.0m due to weaker CPO’s ASP of RM2,117/mt in FY18 compared against RM2,715/mt in FY17, representing a drop of -22%yoy. On a quarterly basis, the 4Q18 ASP for CPO was merely at RM1,848/mt, a drop of -28%yoy. The weaker pricing, especially in 4Q was a major factor to margin thinning. We opine that this was due to the lower price of its CPO from Indonesia due to zero export levy, where most of its FFB production growth coming from. Malaysian CPO could fetch a higher price. However, production was hit subsequent to adverse weather conditions two years ago.

Dividend. The group recommended a final single-tier dividend of 8.25sen per share in 4Q18, subject to approval in the next AGM. If approved, together with interim dividend of 4.75sen, the total dividend for FY18 would be 13.0sen per share. It was lower-than-expected and almost 50% slash from FY17 of 26.0sen per share. This should translate to a dividend pay-out ratio of 62%.

Earnings estimate. We have revised our FY19 core earnings downward forecast by -9.3% to RM250.7m in view of lower ASP of CPO in FY19.

Source: MIDF Research - 27 Feb 2019