WITH the global market in a bearish mood in recent weeks, investors must be looking for “safe haven” or defensive stocks that are little affected by volatility. A good example is the blue chip Genting Plantations Bhd (fundamental: 2.70; valuation: 1.40), which has outperformed the broader market and many of its peers.

An integrated palm oil player with an established growth track record, Genting Plantations (GenP) is flush with cash after having raised some RM1 billion via a sukuk recently. This gives it the capacity to continue its landbank expansion and fund its foray into the downstream sector.

To date, GenP’s shares have traded in a tight range and remained flat compared with a 3% decline in the FBM KLCI. Investors keen on its long-term growth potential may consider investing in GenP-WA, which only expires on June 6, 2019.

The company-issued warrant has an exercise price of RM7.75 and a one-to-one conversion ratio. Its growth catalyst is the young tree profile of its 62,000ha of planted land in Indonesia. Almost all the trees are below seven years of age and half of these will be reaching their prime over the next three years. By comparison, the average age of trees in its Malaysian plantations is 16 years.

GenP’s fresh fruit bunch production is expected to grow at a double-digit percentage over the next two years, say analysts.

In a June 23 note, AmResearch says GenP’s net income and total landbank have almost doubled in the last 10 years. The company’s FY2016 earnings multiple of 21 times is also cheaper than that of its peers, such as IJM Plantations Bhd (fundamental: 1.60; valuation: 0.80) and TSH Resources Bhd (fundamental: 0.45; valuation: 0.50).

“The company is positioned to benefit from a recovery in crude palm oil prices due to its young tree profile. More than 8,000ha of trees will enter maturity [phase] by FY2015 and its balance sheet is healthy with low net gearing of just 1.6%,” says the research house.

At its close of RM2.11 last Tuesday, GenP-WA was trading at a discount of 0.5% to the underlying share. Over the past year, the warrant has been trading at close to zero premium, indicating that there is active trading in it.

The RM11.60 target price set by AmResearch for GenP indicates an upside potential of 17% based on the company’s  closing price of RM9.91 last Tuesday. Assuming zero premium, GenP-WA would theoretically be worth RM3.85 or have an 82% upside if the mother share reached the fair value.

Note: The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Visit www.theedgemarkets.com for more details on a company’s financial dashboard.

This article first appeared in Capital, The Edge Malaysia Weekly, on July 6 - 12, 2015.

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