Genting Plantations Bhd
(May 6, RM9.90)
Maintain hold with an unchanged target price of RM10.65: Management guided that barring unforeseen extreme weather conditions, fresh fruit bunch  production in 2015 remains on track to grow by 10% to 12% on the back of a 2% growth in Malaysia and 70% growth in Indonesia.

Crude palm oil (CPO) cost of production is expected to increase in financial year ending Dec 31, 2015 estimates (FY15E). Fertiliser costs were lower than usual in 2014 while palm kernel prices were higher. 

After the 200,000-tonne biodiesel plant in Lahat Datu, further downstream expansion in refining and high value palm oil derivatives are in progress. Demand for residential and commercial properties, especially in Johor, remains slow. The group will focus on the upgrade 

market. 

While there are no surprises operationally, there are looming downside risks to CPO selling prices. Indonesia may impose an export levy while year-to-date CPO prices have averaged only RM2,233 per tonne. 

The 5.7% depreciation of the ringgit against the US dollar implies potential unrealised forex losses in the first quarter of FY15 (1Q15), which are however non-core. The ringgit has also strengthened to RM3.599 from a low of RM3.716. 

With the potential downside risks to CPO selling prices, we maintain our hold rating. 1QFY15 results are due for release at the end of this month. — Affin Hwang Capital, May 6 

This article first appeared in The Edge Financial Daily, on May 7, 2015.