GENP’s 1QFY24 results met expectations. Its 1QFY24 core net profit grew 18% YoY thanks to firmer CPO prices and lower production cost, while FFB production was flattish. Its FFB production should improve in 2H. We maintain our forecasts, TP of RM6.00 and our MARKET PERFORM call.

Its 1QFY23 core net profit of RM41m (excluding net exceptional gain of RM1.7m due mostly to forex gain of RM2.8m and disposal loss of RM1m) came in at only 14% and 13% of our full-year forecast and the full-year consensus estimate, respectively. However, we consider the results within expectations as we expect FFB production to pick up, especially during 2H.

YoY, its 1QFY24 core net profit grew 18% thanks mainly to firmer CPO prices, lower production cost and slightly better property profits partially offset by downstream losses, while its FFB production was flattish.

QoQ, its revenue dropped 24% mainly from seasonally lower FFB output (-21%) and weaker downstream sales, partially cushioned by higher CPO prices (+7%). Its core net profit fell by a sharper 36%, weighed down by loss of operating scale despite a 7% rise in PK prices (that set off against its CPO production cost).

Outlook. We believe firm CPO prices should hold through CY24-25 on the back of tightening edible oil inventory till possibly mid-CY25 as production is trying to catch up with trend line demand growth of 3%- 4% YoY. As such, edible oil prices, notably CPO may swing unexpectedly from negatives news on the weather, shipping or geopolitical fronts. We are holding our CPO price forecasts at RM3,800 per MT over CY24-25 but as half its harvest sells at lower Indonesian prices, GENP’s average CPO should hover closer to RM3,500-3,600 per MT over FY24-25.

Meanwhile, fertiliser prices are about 30% lower than a year ago while energy costs are 10% down YoY. PK prices which have been weak since mid-2022 may have bottomed as GENP already reported higher 1QFY24 PK prices and better PK sales proceed will go towards containing CPO cost further. Although FFB production was slightly soft in 1QFY24, the overall output trend is normalising both in Malaysia and Indonesia. The group’s Indonesian palm trees are also entering more productive age bracket, which is supportive of annual output growth of 3%-5% over FY24-25.

Its property earnings will be underpinned by the recent launch of industrial properties in Batu Pahat as well as the pending opening of the Premium Outlet in Jakarta due in early-FY25. The demand for Kulai properties, a growing suburb of Johor Bahru, is also supportive of better property prospects ahead.

Forecasts. No change.

Valuations. We also maintain our TP of RM6.00 based 1.0x PBV which is in line with the plantation sector 1-2x PBV range. There is no ESG adjustment to our TP based on a 3-star rating as appraised by us (see Page 3). Maintain MARKET PERFORM.

Risks to our call include: (i) Western hostility towards palm oil on sustainability and bio-diversity issues; (ii) impact of weather and labour shortages on production, (iii) weak CPO and PK prices, and (iv) cost inflation particularly fertilisers.

Source: Kenanga Research - 30 May 2024