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This article first appeared in The Edge Financial Daily on May 25, 2018

Genting Plantations Bhd
(May 24, RM9.44)
Upgrade to buy with a higher target price (TP) of RM11.90:
Genting Plantations Bhd reported a revenue for its first quarter of financial year 2018 (1QFY18) ended March 31, 2018 of RM529.1 million (+32.2% year-on-year [y-o-y]), mainly attributable to a higher offtake from its refinery and higher progressive completion of its property projects, but this was partially offset by a weaker contribution from its upstream plantation segment. The blended crude palm oil (CPO) and palm kernel average selling prices for 1QFY18 were lower y-o-y at RM2,375 per tonne (1QFY17: RM3,053/tonne) and RM2,083/tonne (1QFY17: RM3,097/tonne), respectively, while Genting Plantations’ fresh fruit bunch (FFB) production increased by 19.6% y-o-y to 485,500 tonnes.

Genting Plantations’ profit before tax (PBT) for 1QFY18 increased by 21.7% y-o-y to RM130.6 million. However, after adjusting for one-off items, including foreign exchange gain and gain from the acquisition of land by the government, 1QFY18 core net profit declined by 4.3% y-o-y to RM73.2 million, accounting for 19% and 20% of our and consensus FY18 forecasts, respectively. We deem this to be in line with our expectations as we expect stronger quarters ahead.

On a sequential basis, Genting Plantations’ 1QFY18 revenue was flat (+0.1% quarter-on-quarter [q-o-q]) at RM529.1 million but PBT was weaker by 8.1% q-o-q on the back of lower contribution from all segments, with the exception of the Indonesian plantation segment. Genting Plantations’ 1QFY18 core net profit declined by 29.3% q-o-q to RM73.2 million.

We leave our FY18 to FY20 core earnings per share (EPS) estimates unchanged post 1QFY18 results. We expect higher FFB and CPO production as well as an increase in contribution from the downstream plantation segment to drive earnings growth over FY18 to FY20. Hence, we raise our 12-month TP for Genting Plantations to RM11.90 (from RM10.75), based on an unchanged 22 times price-earnings ratio on our FY19 EPS estimate. Given the 25% upside potential to our new TP, we upgrade Genting Plantations to “buy” from “hold”. — AffinHwang Investment Bank Bhd, May 24

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