Genting Plantations’ 1H15 results were below expectations, mainly owing to weak FFB production, and it being a victim of the dry spell in Sabah. We reduce our SOP-based TP to MYR10.40 (from MYR11.50), implying a 17% upside. No change to our BUY recommendation, as we believe valuations are at more attractive levels now, while FFB growth remains intact on the back of rising Indonesian landbank maturity.

Below expectations. Genting Plantations’ (GP) 1H15 core net profit was below our and consensus estimates, at 34-35% of FY15 forecasts. This was due lower-than-expected FFB production of +0.9% YoY (vs our projected +6% and management’s previous target of 10% for FY15), caused by continued dry weather in Sabah, as well as lower-thanexpected CPO prices. It declared an interim net DPS of 2.5 sen.

1H15 core earnings fell 32% YoY, while turnover slipped 9%. Besides the FFB decline, earnings weakened from a 16% YoY drop in CPO priceand a 17% drop in the palm kernel (PK) average price. In 1Q15, itrecognised a MYR16m profit from the divestment of land in its Genting Permaipura development which, if excluded, would have brought down the property division’s EBIT contribution by 57% YoY in 1H15.

Briefing notes: i) GP cut its FY15 FFB projection growth to 7% (from 10% YoY), ii) weather has been dry in Sabah from Feb-May 2015, but has since normalised in Jun-Aug. For FY16, GP expects FFB production in Malaysia to drop by low single digits YoY due to the dry weather impact and higher replanting, iii) 1H15 production cost was flat YoY at c.MYR1,300/tonne. GP has locked in its fertiliser requirements for FY15 at prices 7% higher YoY, iv) its unbilled property sales currently totalMYR45m, and v) 1% depreciation of the MYR would have a -MYR3.5m impact on GP’s net profit due to its USD310m debt.

We cut earnings forecasts for FY15 by 14.2% and 3-7% for FY16-17, after lowering estimated FFB production to 4.8% for FY15 (from +6%), followed by a lower 9-15% growth for FY16-17 (from +13-16%). We have also cut our CPO price assumption for FY15 to MYR2,200/tonne (from MYR2,350) and imputed our latest in-house currency forecasts. Every MYR100/tonne change in CPO prices could impact profit by -7% pa.

Our SOP-based TP drops to MYR10.40 (from MYR11.50), after we reduce our 2016 P/E target for the plantations division to 17x (from 18x), to account for weak market sentiment and foreign fund outflows . Maintain BUY, on inexpensive FY16 valuations and decent growth.