M&A opportunities are on the cards with a war chest of ~RM800m, while an economic reopening together with the new theme park will benefit its premium outlets. After >30% YTD share price decline, valuations could have undershot on the downside. Keep FY21-22E CNP unchanged as updates are consistent with expectations. BUY with a TP of RM7.65 On a PBV-basis, GENP is valued at ~1.1x which at a discount to ESG-laden FGV.

Despite its replanting activities in Malaysia (estimated at 4k Ha), management is maintaining its FY21 production growth guidance at 3-5% (in line with our FY21 forecast of 5%). Growth will be driven by its Indonesian trees’ young age profile, which we estimate at c.9-10 years. Peak production is expected in 4QFY21 (OctNov), which deviates slightly from the usual SepOct peak. The impact of labour shortage (<5% short) remains manageable with on-going initiatives to hire locally and alleviated by smaller planted Ha (replanting 4k Ha). There were no COVID-19 outbreaks in GENP’s estates.

With a wide POGO (palm oil-gas oil) spread of ~USD450/MT (vs. 3-year average of ~USD150/MT), we expect downstream to remain challenging. While the view is that prices are likely to remain elevated when compared to 2020 (~RM2,800/MT), there are more downside risks than upside to current CPO prices. We understand the group has sold forward ~20% of FY21 production, although at an undisclosed price. Management hopes to keep FY21 cost of production below FY20’s level of ~RM1,800/MT on production growth (vs. our ~RM1,900/MT). We think production cost could creep up on higher fertilizer cost (~10%) and potentially higher fertilizer application rate in 2Q-3QFY21 given lower application in 1QFY21 (~15%) due to wet weather.

GENP is open to M&A possibilities given that the group is sitting on a still growing war chest of ~RM800m. We believe the group is more likely to be interested in estates in South Kalimantan where its Indonesian estates are concentrated. On the ESG-front, GENP’s improvements include greater disclosure for its Indonesia division, such as traceability and land area under sustainable certification.

Source: Rakuten Research - 4 Aug 2021