Earnings below estimates

1Q16 core PATMI came in below expectations largely on negative FFB output growth, and low CPO ASP achieved. Earnings will get better but largely in 2H16 as FFB output is expected to remain weak in 2Q16. Given the lack of catalyst and trading at 26x 2016 PER, GENP remains a HOLD with an unchanged RNAV-based TP of MYR10.00.

Hurt by low FFB output & relatively low CPO ASP

GENP reported headline 1Q16 net profit of MYR27m (-49% YoY, -55% QoQ). Stripping aside forex losses of MYR9m, 1Q16 core PATMI of MYR34m (-49% YoY, -42% QoQ) met just 10%/11% of our/ consensus full-year estimates. The shortfall was largely due to a decline in FFB output (-11% YoY, -37% QoQ) on lagged effect of 2015’s drought. This was partly mitigated by just marginally higher CPO ASP at MYR2,273/t (+1% YoY, +9% QoQ) which was affected by the USD50/t CPO export levy introduced by Indonesia in July 2015. In addition, 1Q15 core net profit was boosted by MYR20m disposal gain of assets in Kedah.

Weak operational figures at upstream & property

1Q16 plantation EBITDA was MYR61m (-22% YoY, -26% QoQ). FFB output met just 16% of our 2016 forecast. 1Q16 property EBITDA was also poor at MYR11m (-62% YoY, -21% QoQ) in the absence of land disposal gain this quarter. Meanwhile 1Q16 property sales were flattish YoY and QoQ at MYR27m. But unbilled sales fell to MYR20m (-52% YoY, -43% QoQ) as at 31 Mar 2016 which signals lower earnings visibility in the coming quarters.

Lacks catalyst; HOLD

We expect sequentially stronger quarterly earnings especially in 2H16 when FFB output picks up sharply. Following the weak 1Q16 output, GENP is now guiding for just a small FFB output growth in 2016 (previously +6-7% YoY; MKE: +14% YoY). We are keeping our EPS forecasts unchanged for now pending further clarification. GENP remains a HOLD with an unchanged RNAV-based TP of MYR10.00.

Source: Maybank Research - 24 May 2016