Genting Plantations Bhd
(Feb 23, RM11.30)
Maintain hold with a higher target price (TP) of RM10.42: Genting Plantations Bhd posted a net profit of RM202 million for its fourth quarter ended Dec 31, 2016 (4QFY16). After adjusting for the foreign exchange gain of RM12.4 million coupled with one-off intangible assets written off from the biotechnology segment of RM80 million and RM136.9 million gains on disposal of land, we derived its core net profit of RM132.7 million, which increased 36.4% quarter-on-quarter (q-o-q) and 109.1% year-on-year (y-o-y).
The vibrant performance in this quarter was propelled by the plantation segment which was underpinned by the recovery in fresh fruit bunch (FFB) production and favourable average selling price (ASP).
The group’s full 12 months of FY16 (12MFY16) core net profit made up 121% and 122% of our and consensus’ full-year estimates respectively, given ballooned selling price in palm kernel (PK).
The compelling performance in 4QFY16 was underpinned by higher revenue in 4QFY16 of RM513.4million (+29.4% q-o-q, +21% y-o-y), which was mainly attributed to the plantation segment in view of favourable recovery of FFB production (+21.4% q-o-q) coupled with slight improvement in ASP of crude palm oil (CPO) (+9% q-o-q) and PK (+5.9% q-o-q).
On the same note, on a yearly basis, the better performance was a result of jumps in ASP for crude palm oil (CPO) (+37.3% y-o-y) and PK (+76.7% y-o-y) coupled with higher FFB production (+6.2%).
The stellar 12MFY16’s core net profit of RM301.6 million (+46.8% y-o-y) was due to strong earnings picked up in the Indonesia operation with profit before tax (PBT) jumping from RM11.1 million to RM103.2 million given additional harvesting areas and improved maturity profile.
Besides, the biotechnology segment also achieved lower losses of RM19.2million as compared with losses of RM31.2 million in 12MFY15 in view of lower research and development expenditure.
Nevertheless, the core net profit was softened by the lacklustre property segment with PBT whittled down 31% y-o-y to RM42.2 million.
Looking forward, the performance in FY17 would be driven by strong FFB production growth in the Indonesia operation.
Overall FFB production in FY16 declined 6.2% y-o-y due to the lagged weather effects despite increased harvesting areas and a better age profile in Indonesia.
Nevertheless, we understand that the FFB growth rate in FY17 is expected to be in the double digits, in tandem with the optimism of high production growth in the Indonesia operation, while the Malaysia operation posts a low single-digit growth.
The property segment remains sluggish with current unbilled sales of RM25 million. We believe the property segment would remain subdued in view of the bleak property market condition.
In addition, we learnt that the group will focus on ensuring the range of new offerings are aligned with prevailing demand trends and affordability, which generally command lower margins for the group.
Meanwhile, the group also proposed a final net dividend of eight sen per share. All in, total dividend payout for FY16 would be 21 sen, which translates into a dividend yield of 1.9% based on the current share price. We adjust upwards our earnings forecast for FY17 by 6.5% to take into account strong growth in the Indonesia operation and better margin in view of lock-in favourable fertiliser cost.
At the same time, we introduce our earnings forecast for FY18, which see 7.7% y-o-y growth.
Maintain “hold” with a higher TP of RM10.42 (previously RM9.53), after pegging at a higher price-earnings ratio (PER) of 20 times FY17 earnings under the plantation segment in our sum-of-parts valuation.
Our TP also implies a PER of 28 times of its FY17 earnings per share.
Overall, we “hold” our neutral stance on the group as we do not foresee any immediate catalyst to drive the group’s share price with unfavourable risk reward. — JF Apex Securities, Feb 23