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Thursday, November 24, 2016

Brokers Report: GENP - Outstanding Performance



Retain outperform recommendation with a higher target price (TP) of RM12.51





  • 3QFY16 revenue (QoQ: +28.3%, YoY: +23.8%). The higher 3Q sales were led by plantation (+30.7%) and downstream manufacturing (+13.9%) segments, although this was partly offset by weaker property sales (-17%). Average CPO prices jumped 29% YoY to RM2,617/m while FFB production dropped by 6% YoY to 439,000k mt (3Q Malaysia: -8% YoY, Indonesia: flat). Plantation sales in Malaysia surged 20% YoY while Indonesia jumped 81% YoY, bolstered by stronger palm oil prices. Biodiesel sales rose 14% YoY to RM22.1m On the other hand, property sales dropped 17% to RM32.6m, due to weaker sales in existing projects. It sold a piece of 10 acre land in Kula to a private school for RM8.7m.
  • 3QFY16 core net profit nearly tripled to RM96.1m. Malaysian plantation earnings surged 60% YoY to RM125.9m while Indonesian plantation has turnaround with a profit of RM22.2m. Property segmen contracted 9% YoY to RM11.4m. Cost of production for Malaysia and Indonesia was lower, standing at RM1000/mt and RM1,800/mt respectively, driven by lower fertilizer application and higher palm kernel credit. (Group- 3Q: RM1,195/mt, 9MFY16: RM1,530/mt) Biotechnology’s losses have narrowed to RM4.7m as it incurred lower research development spending. Biodiesel segment registered a loss of RM1.9m, dragged by low capacity utilization level, lower crude glycerine sales coupled with the pre-commissioning costs for the palm oil refinery in Lahad Datu, Sabah. Johor Premium Outlet (JPO) continued to show encouraging earnings contribution, up 9.4% YoY to RM5.8m.
  • Guidance. Management expects to see a strong recovery in production for 4Q (+20% vs 3Q) due to the good weather condition. It is also looking at 10% FFB production growth in FY17. About 250ha in Indonesia was planted in 3Q and the Group targets to achieve tota new planting of 2,000ha for FY16. About 4,000ha and 8,000ha will turn into mature area for FY16 and FY17, respectively. Total mature area stands at 93,000ha by end-2016. The newly completed 600,000m palm oil refinery (72%-owned) in Sabah, is completed and is expected to be commissioned in early-Jan 2017. Meanwhile, the 240,000mt p.a biorefinery project, which is in collaboration with a US-based company will be delayed due to the current weak crude oil prices. Lastly, the opening of second JPO in Genting Highlands will be delayed to 1QFY17.


Genting Plantations 9MFY16 core earnings rose to RM167.6m, making up about 80% and 69% of our and market expectations after stripping out i) ne unrealized FX loss of RM2.1m and other one-off items. The encouraging results were mainly led by stronger-than-expected average CPO price recorded despite weaker production. The 3QFY16 result has even surpassed the cumulative 1H results. No dividend was declared for the quarter. We continue to maintain our Outperform call with a higher TP of RM12.51 after inputting higher earnings margin for the plantation segment.




Source: PublicInvest Research - 24 November 2016

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