Genting Plantations Bhd
(Feb 27, RM10.38)
Maintain hold with an unchanged target price (TP) of RM10.95: Genting Plantations Bhd’s (GenP) core net profit of RM140.2 million (-11.9% year-on-year [y-o-y]) for the financial year ended Dec 31, 2019 (FY19) came in above our expectations. Higher profits from its downstream manufacturing and property divisions were negated by lower plantation earnings. We expect GenP’s earnings for FY20 and FY21 to increase on the back of higher crude palm oil (CPO) prices and production. We make no major changes to our FY20 and FY21 core earnings forecasts and our CPO assumptions remain at RM2,500 to RM2,600 per tonne. We maintain our “hold” rating on GenP with an unchanged discounted cash flow-derived TP of RM10.95.
GenP’s revenue for FY19 was higher at RM2.3 billion, up 19.1% y-o-y, mainly attributable to higher sales volume for downstream manufacturing (especially of biodiesel and refined palm products) but partially dragged by weaker contributions from its upstream plantation (lower CPO average selling prices [ASPs], which outweighed growth in fresh fruit bunch [FFB] production) and property divisions. In FY19, GenP’s CPO and palm kernel ASPs were lower by 3.2% and 30% y-o-y at RM2,048 per tonne (FY18: RM2,117 per tonne) and RM1,179 per tonne (FY18: RM1,681 per tonne) respectively, while FFB production increased by 5.3% y-o-y to 2.2 million tonnes. CPO prices rallied in the fourth quarter of FY19, driven by a decline in inventory levels due to the tightening of supplies. However, the late rally was not sufficient to offset weaker prices in the first nine months of FY19. GenP’s earnings before interests, taxes, depreciation and amortisation margin declined to 17.9% (-3.3 percentage points) in FY19, mainly due to a weaker margin for its upstream plantation division.
GenP’s profit before tax for FY19 declined by 10.7% y-o-y to RM185.5 million. The lower profit from its upstream plantation division was partially offset by higher profit contributions from its downstream manufacturing and property divisions. After adjusting for one-off items, GenP’s FY19 core net profit declined by 11.9% y-o-y to RM140.2 million, but accounted for 116% and 99% of our and the consensus forecasts respectively. This was mainly due to a higher-than-expected contribution from its upstream plantation division.
GenP declared a dividend per share (DPS) of 9.5 sen, bringing its total DPS for FY19 to 13 sen as expected (FY18: 13 sen). — Affin Hwang Capital, Feb 27