GP should continue to see decent FFB growth despite El Nino conditions on the back of new maturing Indonesian estates. Together with the anticipated higher CPO prices, this could propel its 3-year earnings CAGR to 31%. Maintain BUY with a higher SOP-based TP of MYR12.60 (15% upside), implying an EV/ha of USD19,800, lower than the Malaysian sector average. Valuations remain attractive, 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.

Decent earnings prospects. We continue to like Genting Plantation’s (GP) earnings prospects, given its 3-year earnings CAGR of 31%, driven by higher CPO prices and still decent FFB growth from its maturing Indonesian estates. FFB to continue growing due to Indonesian contributions. GP’s FFB production improved by 6.7% QoQ in 4Q, bringing FY15 growth to 4.3%, slightly short of our 6% target. Going forward, we expect GP to post a 5.7% FFB growth in FY16, coming from a reduction in Malaysian output by 5% (due to the El Nino impact) and an increase in Indonesian output by 36% YoY. TP raised. We make no significant changes to our earnings forecasts and introduce FY18 projections, with CPO price assumption of MYR2,500/tonne. We raise our SOP-based TP to MYR12.60 (from MYR11.95), after raising our plantation division target P/E to 20x (from 19x). Our TP implies an EV/ha of USD19,800/ha, which is still relatively inexpensive, compared with the Malaysian sector average of USD30,000/ha

Maintain BUY, 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

Key highlights from analyst briefing GP is lowering its FY16 FFB projection growth to 6-7% (from 8-10%), taking into account the El Nino impact. For FY16, GP expects FFB production in Malaysia to drop by 5-6% YoY due to the dry weather impact. Indonesia’s estates could still see a 30-40% growth due to new maturing areas, although this is lower than the previous estimate of 50-60% growth in FY16.

In 1Q16, weather remains relatively dry in Sabah and Peninsular Malaysia, but Indonesia has seen improved rainfall since Nov/Dec 2015. FY15 production cost is estimated at MYR1,253 per tonne in Malaysia and MYR2,100 per tonne in Indonesia, For FY16, management estimates costs to remain at below MYR1,300 per tonne for Malaysia and improve to below MYR1,700 per tonne in Indonesia on the back of higher productivity. GP’s tender for its 1H16 fertiliser requirements is 10% lower YoY in Malaysia, but 14% higher YoY in Indonesia, mainly due to the weaker IDR vs the USD.

Total property sales recorded in FY15 were MYR153m, with unbilled property sales at MYR35m currently, Management expects to see similar property sales in FY16, although it expects to see land sale recognition in Johor in FY16. We have not imputed this land sale into our forecasts. Capex for FY16 is projected at MYR420m-430m.

SWOT Analysis

Source: RHB Research - 23 Feb 2016