Genting Plantations 1HFY24 core earnings improved by 22.1% YoY to RM127.2m after stripping out i) net surplus arising from government acquisition (RM9.5m), ii) gains on disposal of assets (RM2.8m), iii) net foreign exchange differences (RM3.6m), iv) PPE written off (RM2.5m), v) impairment losses on plasma cooperative receivables (RM12m) and vi) minority interests (-RM6.8m). The stronger results were in line with our full-year expectation but a slight miss for the street, making up 48% and 44%, respectively. Maintain Neutral with a new SOP-based TP of RM6.16 after introducing our new earnings forecast for FY24-26F. A first DPS of 8sen was declared for the quarter.

• 2QFY24 revenue (QoQ: +25%, YoY: -6.1%). The revenue fell from RM806m to RM757m, mainly dragged by weaker sales from plantation and downstream manufacturing segments. Plantation sales fell 1.1% YoY to RM565m due to lower FFB production recorded. 2QFY24 Average CPO prices advanced from RM3,584/mt to RM3,797/mt (1HFY24: RM3,721/mt, +3.8% YoY) while 2QFY24 FFB production slipped 2.8% YoY to 483k mt (1HFY24: 941k mt, -1.4% YoY), affected by high rainfall and low cropping trend in West Kalimantan as well as ongoing replanting programme in Malaysia. OER stood at 21.2% (1HFY24: 21.3%). Downstream manufacturing sales dipped 12.6% YoY to RM324m. On the other hand, property sales rose 3.1% YoY to RM22.3m, supported by stronger property sales from Genting Indahpura project in Johor.

• 2QFY24 core earnings rose to RM80.4m. Stripping out the exceptional items, the Group’s core earnings climbed 17.4% YoY to RM80.4m, lifted by all core segments except for property. Plantation pre-tax profit gained 1.9% YoY to RM189m on account of lower production cost. 2QFY24 CPO production cost was higher at RM2,814/mt vs 2QFY23’s RM2,758/mt (1HFY24: RM2,880/mt vs 1HFY23’s RM2,751/mt) Losses from biotechnology segment narrowed to RM0.8m. Downstream manufacturing segment saw a turnaround with a profit contribution of RM6.6m, led by improved refinery margin. Meanwhile, property earnings tumbled 36.2% YoY to RM3.7m in the absence of investment property gain. Meanwhile, earnings contribution from the joint ventures dropped from RM11.3m to RM8.9m, dragged by losses in seedling business, Green World Genetics despite improved earnings contributions from premium outlets in Johor and Pahang.

• Outlook. Due to lower-than-expected FFB yield in Indonesia (contributed 60% of group production), management now expects a flattish production growth for FY24. During the 1HFY24, 1,000 ha was replanted and it targets to complete 2,500 ha this year. Production cost is projected to remain flat this year despite fertilizer cost down by 15% YoY. Meanwhile, fertiliser application reached 45% (2QFY24: 28%). Unbilled property sales stood at RM104m and there will be new launches worth of RM300m in Indahpura and Kencana this year. Refinery capacity utilization improved from 25% to 33% while biodiesel remained at 27%. Lastly, there will be a new premium outlet in Jakarta and is scheduled to open by 1QFY25.

Source: PublicInvest Research - 29 Aug 2024