KEY INVESTMENT HIGHLIGHTS

• 2Q20 normalised earnings grew to RM23.3m (+48.4%yoy)

• 1H20 normalised earnings rose to RM97.5m (+55.1%yoy) which is within our and consensus expectation

• Mainly due to higher CPO and CPKO price of RM2,465/mt (+26.0%yoy) and RM1,439/mt (+20.0%yoy) respectively

• FFB production expected to improve due to larger harvesting area and better age profile

• Recovery in the downstream and property segment is anticipated post movement control order (MCO)

• Maintain BUY with an unchanged TP of RM12.10

Expecting higher earnings growth in 2H20. Genting Plantations Berhad’s (GENP) 2QFY20 normalised earnings jumped by +48.4%yoy to RM23.3m. Cumulatively, the group’s 1HFY20 normalised earnings rose by +55.1%yoy to RM97.5m, which is primarily driven by higher CPO price. Nonetheless, this came in within our and consensus’s expectation as it accounted for about 41.2% and 44.9% of the full year FY20 earnings forecasts. Moving forward, we expect the favourable CPO price and recovery in FFB production would further support the earnings growth momentum in the coming quarters.

Higher CPO price buoy profit margin. The higher 1HFY20 earnings were mainly attributable to the recovery in average selling price (ASP) of CPO and CPKO to RM2,465/mt (+26.0%yoy) and RM1,439/mt (+20.0%yoy) respectively. This led to an expansion in EBIT margin by +3.6ppts yoy to 9.7%. We are of the view that the group will able to continue to maintain a healthy profit margin given the elevated CPO price on a year-over-year basis.

Expecting FFB production to recover in 2HFY20. The group’s 1HFY20 FFB production fell by -11.0%yoy to 949k mt, largely caused by the lagged effects of adverse conditions in 2019. Note that this was in line with the industry trend of the lower yields of 7.85tonnes/ha in 1HCY20 vs 8.44tonnes/ha in 1HCY19. Nonetheless, we opine that the group’s FFB yield to be gradually improving from an increase in harvesting area and a better age profile primarily from its Indonesian estate. Thus, we are now expecting FFB output to remain resilient in FY20, achieving a flat growth on a year-over-year basis.

Gradual recovery of property segment in 2HCY20. The better performance in this segment which recorded an improved performance in 1HFY20 were mainly due to the sale of its Bangi Factory with a gain of disposal of RM11.3m (refer to Table 1). As of 1HFY20, the group achieved RM16.0m of property sales and has an unbilled property sales worth about RM31.0m as of June 2020. Nonetheless, we foresee a gradual rebound in the property segment in 2HCY20 on the resumption of economic activities post-MCO and the revival of the Home-Ownership campaign as announced by the Malaysian Government

Source: MIDF Research - 27 Aug 2020