KUALA LUMPUR (Aug 4): Genting Plantations Bhd’s (GenP) "outperform" rating was maintained by Kenanga Investment Bank Bhd with a target price (TP) of RM7.56 per share, backed by its reassurance of a near-term upstream outlook that would overshadow a weak downstream.
Kenanga, in a research note, said growth would be driven by its Indonesian trees' young age profile, with peak production expected in the fourth quarter of financial year 2021 (October-November), deviating slightly from the usual September-October peak.
The impact of a labour shortage (about 5% short) remains manageable with ongoing initiatives to hire locally, alleviated by smaller planted hectares.
Besides, there were also no Covid-19 cases in GenP estates, it said.
Meanwhile, the research firm also noted that merger and acquisition (M&A) opportunities for GenP are also on the cards as the company gets proposals from time to time.
"Given that the group is sitting on a still-growing war chest of about RM800 million, we think M&A opportunities to boost planted area and production growth could be found.
"We think the group is more likely to be interested in estates in South Kalimantan where its Indonesian estates are concentrated," said Kenanga.
On the environmental, social, and governance (ESG) front, it said GenP’s improvements include greater disclosure of its Indonesia division, such as traceability and land area under sustainable certification.
Risks to its call include lower-than-expected crude palm oil (CPO) prices, prolonged lockdowns, and a precipitous rise in labour/fertiliser/transport and other costs.