INVESTMENT HIGHLIGHTS

• 1QFY19 core earnings of RM47.2m came in below ours and consensus expectations

• This was mainly due to the lower-than-expected average selling price (ASP) of both CPO and CPKO

• Earnings revised downwards for FY19 and FY20 in view of profit margin compression

• Maintain SELL with a revised TP of RM8.90

Earnings halved. Genting Plantations Berhad’s (GENP) 1QFY19 normalised earnings plunged by -53.3%yoy to RM47.2m. This came in below expectation as it accounted for merely 18.8% and 17.2% of both our and consensus full year FY19 earnings forecasts due to the weakerthan-expected ASP of CPO and CPKO in view of elevated stockpiles and lower pricing of its major substitute soybean oil. Meanwhile, the reported profit before tax of its plantation segment has also fell by -45.6%yoy to RM107.0m, which accounted for 84.0% of total PBT.

EBIT margin compression. 1QFY19 EBIT margin dropped by - 14.6ppts yoy to 11.2% as a result of weaker CPO and CPKO’s ASP of RM1,974/mt and RM1,283/mt in the first quarter compared against RM2,375/mt and RM2,083/mt of the same period in prior year, representing a decrease of -17.0%yoy and -38.0%yoy respectively. Meanwhile, improvement in FFB production of +14.0%yoy to 554kMT led to +17.5%yoy increased in revenue to RM621.7m. Note that most of the FFB growth came from the group’s operation in Indonesia which command lower ASP (5-8% discount) to that of Malaysians’, causing the margin to be impacted negatively as well.

Earnings forecast. In view of the earnings underperformance and sustained weak CPO pricing, we have further revised downward our FY19 and FY20 core earnings forecast by -17.2% and -12.1% to RM207.6m and RM264.2m respectively. In addition, we have also introduced our new set of FY21 earnings forecasts.

Target Price. Rolling-over our valuation base year to FY20, we have derived a revised Target Price (TP) of RM8.90 (previously RM8.10). This is premised on pegging FY20 eps of 31.8sen to target PER of 22.7x, which is the group’s two years historical average PER.

Source: MIDF Research - 24 May 2019