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GENTING Bhd’s commodity-based operations will be closely watched. Analysts expect its financials to improve in anticipation of crude palm oil (CPO) prices rising in tandem with crude oil.

In a note, MIMB Investment Bank said Genting’s lower earnings in the first quarter ended March 2009 were mainly due to weaker performance at the firm’s palm oil operations under Asiatic Development Bhd.

The average selling price of CPO during the quarter was RM1,862 a tonne, 45.3% lower than the RM3,403 recorded a year earlier.

“We have kept our estimates for now. With the steady recovery of CPO prices, Genting should be able to post better plantation earnings going forward.

“Pre-operating costs from the Sentosa Integrated Resort will continue to affect Genting till this year-end,” wrote MIMB, which maintained its buy call on Genting at RM5.45 with a higher target price of RM6.60 (RM5.15 previously).

Genting’s net profit was more than halved to RM213.12 million in the first quarter ended March 2009 from RM439.42 million a


 
year earlier. Revenue fell 4.2% to RM2.07 billion from RM2.16 billion.

Lower revenue was recorded in all divisions except the power unit. The conglomerate’s lower net profit came  against a backdrop of falling crude oil and CPO prices.

At the same time, the company had incurred a higher pre-operating costs of S$7.1 million (RM17.14 million) at its integrated resort in Singapore, besides larger operating expenses at its Meizhou Wan power plant in China due to costlier coal.

On a quarterly basis, Genting’s net profit leapt into the black from a net loss of RM120.78 million in the preceding fourth quarter ended December 2008 while revenue declined 13.4% from RM2.39 billion.

Meanwhile, commodity prices have been rising. Last Thursday, crude oil rates pierced the US$65 a barrel mark, a six-month high.

This followed updates that the Organisation of Petroleum Exporting Countries would maintain output of the commodity, besides news that crude oil inventories in the US had declined.

Malaysian palm oil rates also climbed. Palm oil for June delivery rose RM5 to RM2,590 a tonne, July prices surged RM13 to RM2554 a tonne, while palm oil for August gained RM18 to RM2,523 a tonne at lunch break last Friday.

Meanwhile, RHB Research highlighted several risk factors worth noting about Genting’s fundamentals.

These include lower-than-expected visitors and revenue per visitor in Resorts World Bhd’s operations, besides larger-than-anticipated construction cost at the conglomerate’s Singapore integrated resort, Resorts world is an associate of Genting.

At the same time, the research firm also took into account lower-than-expected patronage at the casino operator’s  UK operations, and a possibly of lower CPO prices at its plantation operations.

Looking ahead, RHB revised downwards its financial estimates for Genting by 2.3% in FY09, but tweaked  its forecast upwards by 2.7% and 0.7% for FY10 and FY11, respectively.

However, it maintained its fair value of RM6.20 and an outperform rating for Genting shares.

Last Friday, Genting closed unchanged at RM5.45.


This article appeared in The Edge Financial Daily, June 1, 2009.

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