Genting  Plantations  (GP)’s  1HFY13  core  net  profit  was  below expectations  on  the  back  of  higher  unit  production  costs.  While  we expect double-digit FFB production growth over the next few years, the still  weak  crude  palm  oil  (CPO)  prices  do  not  bode  well  for  a  pure upstream  planter  like  GP.  Maintain  NEUTRAL,  with  a  lower  SOP-based target price of MYR9.25 (from MYR9.50). 
 
- Below.  Genting  Plantations  (GP)’s  1HFY13  core  net  profit  was  below our  and  consensus  expectations,  coming  in  at  40%  of  our  and  35%  of consensus FY13 estimates. This was attributed to lower EBIT margins of 20% in 1HFY13 (vs 28.5% in 1HFY12), driven by higher unit production costs  in  2QFY13  (up  an  estimated  18%  q-o-q).  Production  costs  rose due  to  higher  upkeep  and  use  of  fertiliser,  as  GP  applied  30%  more fertiliser in 2Q13 vs 1Q13.  However, this should reduce in 2H13, in line with  normal  practices.  Management  expects  FY13  production  costs  to tick up 3% y-o-y (vs our -5% projection).

- GP’s core net profit fell 13%  y-o-y  on  a  12%  increase  in  turnover  in 1HFY13.  The  net  profit  decline  was  due  to  a  28%  decrease  in  CPO average  selling  price  (ASP)  to  MYR2,309/tonne  and  a  38%  decline  in palm kernel (PK) ASP to MYR1,188/tonne, offset by a 22% y-o-y rise in FFB production and an estimated 2% y-o-y fall in unit production costs to MYR1,510/tonne.  Although  GP’s +22%  y-o-y  FFB  production  growth  in 1H13  was  higher  than  our  +15%  y-o-y  FY13  projection,  we  believe  our forecast is achievable, as Management expects FFB growth to moderate for  the  rest  of  the  year,  guiding  for  a  conservative  c.  10%  growth  for FY13. Up to 7MFY13, the FFB growth has moderated to 18.8%.  

- Good  prospects  for  property  division  sales.  Unbilled  sales  currently stand at MYR85m. GP recently sold an additional 162 acres of industrial land in Johor to a developer, which will be recognised in 2014. While the price  was  not  disclosed as  the  sale has  not  been concluded  as  yet,  we understand it was higher than the last land sale at MYR60/sq ft.  

- Maintain NEUTRAL. We are revising our FY13-14 forecasts downwards by  10-17%,  after  incorporating  higher  production  costs.  Post-earnings revision,  we  reduce  our  SOP-based  target  price  to  MYR9.26  (from MYR9.50). While we expect double-digit FFB production growth over the next  few  years,  the  still  weak  CPO  prices  do  not  bode  well  for  a  pure upstream planter like GP. Maintain NEUTRAL.

Source: RHB