Genting Plantations registered a core profit of RM45.4m (YoY: -36%) for 1QFY19, making up 21% and 16.3% of our and consensus expectations, respectively. Despite weaker-than-expected CPO price performance, the results were in line with our expectations, buoyed by encouraging earnings from downstream manufacturing segment. No dividend was declared for the quarter. Maintain Neutral call with an unchanged TP of RM10.00 as valuations remain unattractive at current level.

• 1QFY19 revenue (QoQ: +28.9%, YoY: +17.5%). The stronger 1QFY19 sales of RM621.7m were mainly boosted by encouraging sales in downstream manufacturing segment (+41%), underpinned by the higher offtake of biodiesel and refined palm products, resulting in capacity utilization rate of 75% and 70%, respectively. Upstream plantation sales fell 9.1% YoY to RM200.5m on the back of a decline in palm oil prices despite higher FFB production. Average CPO prices slipped 16.9% YoY to RM1,974/mt while FFB production climbed 14% YoY to 554k mt, attributed to stronger FFB production in Indonesia, led by an expansion in mature area and young age profile while Malaysian production showed a stronger yield due to a change in cropping pattern.

• 1QFY19 core net profit (QoQ: +175.2%, YoY: -36%). The sharp decline in earnings to RM45m was mainly due to lower contribution from plantation segment, which saw its pre-tax earnings down by 29.9% YoY to RM107m. Biotechnology also saw bigger losses at RM3.7m in line with more R&D activities. Property earnings softened by 20.8% YoY to RM3.8m, dragged by lower profit recognition form projects that are in their early stages of development. Downstream manufacturing segment was the sole performer as earnings surged from RM0.4m to RM22m. The contribution from the 50%-owned Genting Premium Outlet and Johor Premium Outlet improved by 9.1% YoY to RM10.7m.

• Management guidance. Management guided that it has spent a similar capex of RM65m mainly on the new planting activities in Indonesia and a new RM60/mt palm oil mill in Kalimantan. It also plans to replant about 3k ha in Malaysia. All-in CPO cost of production was higher by 9% YoY to RM1,800/mt for the quarter as palm kernel credit shrank by RM160/mt to RM270/mt. During the quarter, Peninsular Malaysia experienced dry weather pattern while East Malaysia saw heavy rainfall. Indonesian region could have seen better FFB production if not because the flooding in Central Kalimantan region, which affected the harvesting activities. Nevertheless, management maintains its steady FFB production growth target of 10%-15% for FY19 (Jan-April: +11% YoY). The inventory drawdown has dropped to a normalize level of RM145m (vs RM291m in 4QFY19). Unbilled properties sales stood at RM60m and it recorded property sales of RM30m during the quarter. Large portion of its biodiesel was exported to EU and it has about 80,000mt offtake for Jan-Aug 19, a double compared to the similar period in 2018.

Source: PublicInvest Research - 24 May 2019