GENP’s 9MFY23 results beat our forecast but met market expectation. Its 3QFY23 core net profit grew 13% QoQ largely on stronger FFB output and easing costs. We raise our FY23F and FY24F net profit by 15% and 24%, respectively, lift our TP by 4% to RM5.70 (from RM5.50) but maintain our MARKET PERFORM call.

Its 9MFY23 core net profit of RM187m (-53% YoY) (excluding RM9m land disposal gains, RM3m of impairment and RM3m of forex loss) beat our expectation at 82% of our full-year forecast but only met market expectation at 71% of the full-year consensus estimate.

Its 3QFY23 core net profit improved sequentially to RM82.8m (+20% QoQ, +23% YoY) on flattish CPO price of RM3,409 per MT (-5% QoQ, +1% YoY), seasonal uptick in FFB output of 0.581m MT (+17% QoQ, +10% YoY) and 16% QoQ fall in CPO cost to RM2,330 per MT. GENP’s upstream operation was still loss making while its property earnings inched up QoQ and YoY as the group’s Premium Outlets continued to shine with robust footfall and earnings levels. 9MFY23 ended with net debt of RM1,114m (21% net gearing) compared to RM1,065mn in the last quarter ago. As expected, no interim dividend was declared for 3QFY23 following 1HFY23 dividend of 8.0 sen.

Firm CPO prices expected for FY24-25. Flattish to minimal increments in global edible oil supply against a backdrop of 3%-4% YoY demand growth are expected to prevail in 2024. As such, no substantial inventory build-up is likely in 2024, possibly even as far out as mid-2025. Therefore, global edible oil prices (including CPO) can fluctuate more than usual due to unexpected developments, be its poor weather, shipping disruption or policy changes such as higher biodiesel blend or exports quota. We are keeping our sector CPO price assumption at RM3,800 per MT but with half of its harvest from Indonesia which suffers lower net prices, GENP’s average CPO should hover closer to RM3,500 per MT over FY23-24F.

Easier production costs. Fertiliser cost is still high by historical measure but it has, nonetheless, fallen by 20%-30% YoY. Energy costs have also weakened YoY despite recent rebound in prices. Importantly, FFB production is normalising in Malaysia as workforce shortages have mostly been addressed. El Nino is mild so far with only a month of dryness, hence no fruit output downgrade is likely. Instead, Indonesian tree age profile is supportive of further output growth next year. FY24 should also see palm kernel (PK) prices improve as we expect surfactant, personal care and cosmetic demand to inch up in 2HFY24.

Rising property contribution is also expected. Construction of another Premium Outlet in Jakarta has started and scheduled to open in late FY25. GENP also owns sizeable landbank in Kulai, a suburb of Johor Bahru where property demand should grow as the city expands.

Forecasts. We raise our FY23F and FY24F net profit by 15% and 24% on a 3% and 5% upward revision in FFB, respectively, as well as easier costs. Correspondingly, we upgrade our TP from RM5.50 to RM5.70 based on an unchanged 0.9x PBV. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 3). Maintain MARKET PERFORM.

Risks to our call include: (i) weather impact on edible oil supply, (ii) unfavourable commodity prices fluctuations, and (iii) production cost inflation.

Source: Kenanga Research - 23 Nov 2023