9M15 results disappointed, dragged down by lower profitability at its Malaysian estates due to drought-affected productivity and weaker property sales. Maintain BUY with a lower MYR11.95 TP (17% upside). We continue to like the stock for its still decent growth prospects, its CPO price sensitivity being an almost pure planter, and its valuations, which, if excluding the property RNAV, come down by 3-4x.

Below estimates. Genting Plantations’ (GP) 9M15 results were below our and consensus expectations, at 57-59% of FY15 forecasts. This was due to lower margins recorded at the plantation division given lower productivity at GP’s Malaysian estates (-3% YoY) and weaker property sales. We expect a better showing in 4Q15, driven by higher CPO prices and improved FFB production (October production rose 10% MoM).

9M15 core earnings fell 36% YoY, while turnover slipped 11% due to 13%/14% YoY drops in CPO/palm kernel (PK) prices. Excluding the land sale in 1Q15, GP’s property segment EBIT would have fallen 54% YoY in 9M15.

Briefing notes: i) GP maintains its FY15 FFB projection growth of 6- 7%, ii) weather has improved in Sabah in 3Q, but Indonesia suffered severe dryness in 3Q, with average rainfall of <200mm. For FY16, GP expects FFB production in Malaysia to drop by 2-3% YoY due to the dry weather impact, while Indonesia’s existing estates could see a 7-8% YoY decline, although this would be offset by new maturing areas, iii) FY15 production cost is estimated at MYR1,200/tonne, as 4Q costs should decline on lower manuring activities. GP is negotiating its FY16 fertiliser requirements which could be 10-11% higher YoY, iv) total unbilled property sales are MYR48m, and v) no unrealised forex losses as GP has shifted its loan into a Singaporean entity, which reports in the USD.

We cut earnings forecasts for FY15 by 14.6% and 8-9% for FY16-17, after: i) lowering estimated FFB growth to +7-15% for FY16-17 (from +9-17%), ii) raising our production cost estimates by 5-10% for FY15-17, and iii) lowering property unit contributions.

Maintain BUY. We reduce our SOP-based TP to MYR11.95 (from MYR12.80). We maintain our BUY recommendation on the stock, as GP remains one of the more highly-leveraged companies to CPO price movements, where every MYR100/tonne change in CPO prices could impact its profit by 6-7% pa. We believe valuations remain attractive for this well-managed company with decent growth prospects, especially after stripping out the RNAV of the company’s property landbank from its current market capitalisation, which would lower its P/E by 3-4x.

Financial Exhibits

Financial Exhibits

SWOT Analysis

Company Profile

Genting Plantations is a 53.6%-owned subsidiary of the Genting group. It has 261,000ha of plantation landbank, of which close to 200,000ha is in Indonesia. It also has property development projects in Johor, Melaka and Kedah. The group has also invested significantly in biotechnology via the use of genomics to raise productivity and sustainability.

Recommendation Chart

Source: RHB Research - 26 Nov 2015