Genting Plantations’ 1Q15 numbers missed expectations, due to weaker-than-expected FFB production resulting from dry weather in Sabah. We trim our earnings estimates slightly and reduce our SOPbased TP to MYR11.50, implying a 16% upside. We make no change to our BUY recommendation as we believe its strong FFB production growth would help to offset the lower CPO prices somewhat.

Below expectations. Genting Plantations’ 1Q15 core net profit was below our and consensus estimates, at 18-19% of FY15 forecasts. This was due lower-than-expected FFB production of -6% YoY (vs our projected +13% and management’s previous target of 10-12% for FY15). This was caused by dry weather in Sabah in February and March.

1Q15 core earnings fell 18% YoY, while turnover slipped 3%. Besides the FFB decline, earnings weakened from a 16% YoY drop in CPO price and a 12% drop in the palm kernel (PK) average price. It recognised a MYR16m profit from the divestment of land in its Genting Permaipura development, which was included in the property contribution. Excluding this, it would have recorded a 37% YoY drop in its property unit’s EBIT.

Briefing highlights: i) it cut its FY15 FFB projection growth to close to 10% (from 10-12% YoY). We are more conservative, and pare down our projection to 6% growth (from +13%); ii) 1Q15 production cost was flat YoY at c.MYR1,330/tonne. Management expects overall costs to rise by about 2% YoY in FY15 due to lower PK credit and higher fertiliser prices; iii) it has cut its new planting target to 4,000ha in FY15 (from 6,000ha); iv) monthly biodiesel sales to the domestic market have risen to 3,700 tonnes currently vs 2,000 tonnes in 1Q; and iv) its unbilled property sales currently total MYR46m, while projected sales for 2015 are about MYR150m (excluding land sales).

We reduce our FY15-16 earnings forecasts by 7-9% and our FY17F net profit by 2%, after lowering FFB production to 6% for FY15 (from +13%), followed by an unchanged +13-15% growth for FY16-17.

Maintain BUY. Our SOP-based TP drops to MYR11.50 (from MYR12.15). Maintain BUY, as we believe Genting Plantations’ strong FFB production growth would help offset lower CPO prices somewhat. We also highlight that stripping out the RNAV of the company’s property landbank from its current market capitalisation would lower its P/E by 4x- 5x. We highlight that every MYR100/tonne change in CPO prices could impact the company’s net profit by 5-7% pa.

Source: RHB Research - 28 May 2015