KEY INVESTMENT HIGHLIGHTS

• 4QFY19 normalised earnings rose by +230.3%yoy to RM62.6m, mainly due to higher CPO price (+23.0%yoy)

• FY19 normalised earnings of RM140.2m (-5.7%yoy) came in within ours and consensus expectations

• Resilient FFB production growth and an elevated CPO price to drive FY20 earnings momentum

• Downstream segment is expected to continue to lend support to the group’s earnings

• Maintain BUY with an unchanged TP of RM11.80

Strong recovery in 4QFY19 earnings. Genting Plantations Berhad’s (GENP) 4QFY19 normalised earnings jumped by +230.3%yoy to RM62.6m, primarily driven by higher CPO price. Meanwhile, the group’s FY19 normalised earnings fell marginally by -5.7%yoy to RM140.2m as a result of sustained weaker CPO price for the first nine months of CY19. To recall, the ASP of CPO for FY19 was RM2,048/mt (-3.0%yoy). Nonetheless, this came in within expectation as it accounted for about 101.5% and 99.2% of both our and consensus full year FY19 earnings forecasts. Moving forward, we expect the current elevated CPO price and expected healthy FFB production growth would further support the earnings growth momentum in the coming quarters.

Margin expansion. The higher 4QFY19 earnings were mainly attributable to the recovery in CPO’s ASP by +23.0%yoy to RM2,278/mt. This was in spite of the fact that ASP is lower than the spot price of about RM3,000/mt in the same quarter due to the group’s earlier forward selling exercises. In addition, the downstream and property segments’ profit before tax also grew by >+100.0%yoy and +62.0% to RM13.8m and RM15.2m respectively. As a result, this led to an expansion in EBIT margin by +8.0ppts yoy to 13.0%.

Expected resilient FFB output growth in FY20. The group’s FY19 FFB production grew by +5.0%yoy to 2.2m mt. However, this was still insufficient to make up for the fall in the ASP of CPO and CPKO. In FY20, we opine that the group’s FFB production to continue to grow at similar pace, predicating on the higher yields from its Indonesian plantations. Note that the group’s FFB production growth remains stellar in the industry despite the unfavourable weather condition. Coupled with a higher CPO price, we expect this will further improve earnings growth.

Downstream segment to remain encouraging. EBITDA for the segment rose significantly by +421.4%yoy to RM58.4m in FY19 (refer to table 1). This was predominantly due to higher sales volume and capacity utilization as well as improved profit 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 despite the current unfavourable POGO spread might partially dampen the demand for biodiesel in the near term.

Source: MIDF Research - 27 Feb 2020