Investment Highlights

• We maintain HOLD on Genting Plantations (GenP) with a lower fair value of RM8.00/share vs. RM8.30/share previously. We have reduced GenP’s FY22F net profit by 6.6% to account for a higher effective tax rate of 30% resulting from the prosperity tax in Malaysia.

• Our fair value for GenP is based on a FY23F PE of 22.0x. We have used GenP’s FY23F net profit to arrive at its fair value instead of FY22F as GenP’s effective tax rate is expected to normalise to 28% in FY23F vs. 30% in FY22F. We ascribe a three-star ESG rating to GenP.

• GenP’s 9MFY21 core results were 8.4% above our forecast but within consensus estimates. We have raised GenP’s FY21E net profit by 10.6% to account for a higher plantation EBITDA margin of 38.0% vs. 35.0% previously.

• GenP’s core net profit (ex-unrealised forex gains of RM2.6mil) climbed by 74.2% YoY to RM267.9mil in 9MFY21 on the back of a 36.7% surge in plantation EBITDA.

• The plantation division benefited from higher palm product prices. Average CPO price realised improved by 31.0% to RM3,246/tonne in 9MFY21 from RM2,478/tonne in 9MFY20. FFB production growth was an unexciting 1.0% YoY in 9MFY21. All-in cost of production was RM1,895/tonne in 9MFY21 compared with RM2,010/tonne in 9MFY20.

• Downstream EBITDA (biodiesel and palm refining) rose by 55.9% YoY to RM43.5mil in 9MFY21 mainly due to higher selling prices of refined palm products. On a negative note, sales volume of biodiesel products was weak in 9MFY21 as fossil fuel is cheaper than palm biodiesel. Average utilisation rate of the biodiesel plant was 20% in 9MFY21.

• Share of net profit in associates (mainly premium outlets) fell by 61.5% YoY to RM8.7mil in 9MFY21 as the ban on inter-state travelling had affected the number of visitors.

• Comparing 3QFY21 against 2QFY21, GenP’s core net profit inched down by 3.2% to RM101.8mil due to lower property earnings. Average CPO price realised was RM3,502/tonne in 3QFY21 vs. RM3,250/tonne in 2QFY21. FFB production slid by 0.9% QoQ in 3QFY21.

• GenP expects its FFB production to grow between 5% and 8% in FY22F vs. 0% in FY21E. The group also plans to replant about 4,000ha of ageing oil palm trees in FY22F, which is the same as FY21E. GenP is currently in the midst of procuring its fertiliser supply for FY22F.

Source: AmInvest Research - 25 Nov 2021