KEY INVESTMENT HIGHLIGHTS

• 3QFY19 normalised earnings fell by -34.9%yoy to RM17.9m due to low CPO (-4.0%yoy) and CPKO (-33.0%yoy) price

• 9MFY19 normalised earnings of RM84.1.m (-44.4%yoy) came in below ours and consensus expectations

• Healthy FFB production and the recovery of CPO price to above RM2,500/mt to partially support earnings momentum

• Higher contribution from the downstream segment lend support to the group’s earnings

• Upgrade to NEUTRAL with an adjusted TP RM10.30

Expecting recovery in 4QFY19 earnings. Genting Plantations Berhad’s (GENP) 3QFY19 normalised earnings plunged by -34.9%yoy to RM17.9m due to the low CPO price. Meanwhile, the group’s cumulative 9MFY19 normalised earnings fell by -44.4%yoy to RM84.1m. This came in below expectation as it accounted for merely 49.3% and 52.1% of both our and consensus full year FY19 earnings forecasts. This was primarily attributable to the declining ASP of CPO and CPKO and higher cost of production. Nonetheless, the recent ascend of CPO price to above RM2,500/mt and healthy FFB production growth would further support the earnings growth momentum in the coming quarters.

Contraction in EBIT margin. The lower cumulative 9MFY19 earnings were mainly due to the decline in CPO and CPKO’s ASP by -12.0%yoy and -36.0%yoy to RM1,963/metric tonnes (mt) and RM1,161/mt respectively. In addition, the cost of production as of 9MFY19 also went up to about RM1,900/mt due to lower palm kernel credit and higher input costs (i.e. upkeep, fertilizer and maneuvering). This led to a contraction in EBIT margin by -7.6ppts yoy to 7.6%.

FFB production to remain healthy in 4QFY19. The group’s 9MFY19 FFB production grew by +10.0%yoy to 1,614k mt. However, this was insufficient to make up for the fall in the ASP of CPO and CPKO. Moving forward, we opine that the group’s FFB production to continue to grow at high single-digit. This is despite the adverse dry weather conditions affecting yield in both its Malaysian and Indonesia operations. Note that the group’s FFB production growth remains one of the highest among its peers in the industry. We expect this would partially contribute to the better earnings ahead.

Outperforming downstream manufacturing segment. The EBITDA for the segment rose significantly by a whopping +431.0%yoy to RM44.6m(refer to table 1). This was predominantly due to higher sales volume and capacity utilization as well as improved margins for both its biodiesel and refinery operations. We opine that the implementation of B20 mandate in FY20 to be a further boost for this segment.

Source: MIDF Research - 28 Nov 2019