Genting Plantations 1QFY23 core earnings tumbled 69% YoY to RM36m after  stripping out i) net surplus arising from government acquisition (RM3.3m), ii)  gains on disposal of assets (RM4.8m), iii) net foreign exchange differences  (RM3.1m) and iv) net fair value loss on financial assets (RM1.1m). The weak  results made up only 8% and 9% of our and the consensus full-year  expectations, respectively. We lower our FY23-25F earnings forecasts by 40%- 41% after cutting our margin assumption due to higher production cost and palm  kernel credit. Downgrade to Neutral with a lower SOP-based TP of RM6.31 after rolling our valuations to FY23. No dividend was declared for the quarter.

• 1QFY23 revenue (QoQ: -26%, YoY: +10%). The stronger topline of  RM584.2m was led by better performance from property and downstream  manufacturing segments. Plantation sales fell 13% YoY to RM491m. Average CPO prices slipped from RM4,797/mt to RM3,585/mt while 1QFY23 FFB production rose 4% YoY to 457k mt, led by higher production from  Indonesia while Malaysian production registered a marginal drop. Oil  extraction rate stood at 21% for both Malaysia and Indonesia. Property sales  rose 36% YoY to RM22.4m, bolstered by stronger property sales from  Genting Indahpura project in Johor.

• 1QFY23 core earnings sank to RM36m. Stripping out the exceptional  items, the Group’s core earnings tumbled 69% YoY to RM36m, mainly  dragged by weaker plantation earnings and bigger losses at biotechnology  segment. Plantation pre-tax profit tumbled 53% YoY to RM119m on account  of higher production cost due to i) higher minimum wage, ii) higher fertilizer  cost and iii) lower PK credit. Losses from biotechnology segment increased  from RM0.1m to RM2.5m, owing to lower sales. Downstream manufacturing earnings surged 3-fold to RM10.9m. Property earnings jumped 5-fold to  RM9.8m. Meanwhile, earnings contribution from the Premium Outlets remained at RM10m.

• Outlook. Management remains confident to achieve 5% FFB production  growth for FY23 on the back of stronger production from Indonesia while  Malaysia remains stagnant due to aggressive replanting exercise. Replanting  target is 4,000ha with 700ha was replanted as of 1QFY23. Fertiliser  application is on track with 20% achieved. Currently, there is no labour  shortage for the Malaysian operation. 1QFY23 CPO production cost was  higher at RM2,960/mt vs 4QFY22’s RM2,600/mt and management targets a  lower range of RM2,600-2,700/mt for FY23 as fertilizer cost is expected to be  lower by 11% YoY. Unbilled property sales stand at RM97m as of 1QFY23.  Biodiesel sales volume rose 10% while refinery sales more than doubled  with a highe utilization rate of 41%. The footfall for premium outlets has almost recovered to the pre-Covid level. Lastly, a total capex of RM82m was  spent in 1QFY23 with 2/3 allocating for Indonesian plantation as it is  construction a 40mt/hour palm oil mill in Central Kalimantan.

Source: PublicInvest Research - 25 May 2023