This article first appeared in The Edge Financial Daily on June 20, 2017 - June 26, 2017

Genting Plantations Bhd
(June 19, RM11.12)
Maintain hold with a target price of RM10.55: The second premium outlet — Genting Highlands Premium Outlet (GHPO) by Genting Simon — opened its doors to the public on June 15, 2017. This project is a 50:50 joint venture (JV) between Genting Plantations Bhd and Simon Property Group.

We attended the soft launch ceremony. The GHPO could double the retail contributions to Genting Plantations’ profit before tax (PBT). We believe the GHPO provides for better earnings visibility versus the Johor Premium Outlet (JPO) given its more strategic location (natural visitor flow from the annual 20 million visitors to Genting Highlands) and cooler weather.

GHPO is also Southeast Asia’s first hilltop premium outlet centre. The GHPO is located in the same location as the New Awana Skyway to Genting Highlands and it is only a 45 minutes’ drive from Kuala Lumpur city centre.

We gather that 80% of the 150 outlets at the GHPO have opened for business and all stores are well-stocked.

Most of the food and beverage (F&B) outlets are expected to be ready in one to two months’ time as more time is needed for store set-ups. Moreover, the cool weather has further enhanced the shopping experience at GHPO.

Larger leasable areas and a higher ratio of F&B outlets (which give higher rental/revenue sharing to Genting Plantations) are also positive for Genting Plantations’ earnings.

JPO’s earnings grew at a five-year compound annual growth rate (CAGR) of 79% for 2011 to 2016, or contributed about 4.2% to the group’s PBT last year. We are forecasting both outlets (JPO and GPO) to see earnings grow at a three-year CAGR of 44% for 2016 to 2019 (forecasting a high single-digit growth for JPO given a higher base), contributing about 10% to the group’s PBT in 2019.

From April to May this year, fresh fruit bunch (FFB) production grew 6% month-on-month respectively. We understand that FFB production growth remained positive in the first 15 days of this month.

However, FFB production is likely to be flat for this month due to fewer harvesting days as the Hari Raya festive holidays fall at the end of the month. For the cumulative five months of 2017, FFB production increased 38.5% year-on-year (y-o-y).

We remain conservative and maintain our FFB production growth forecast of 16% y-o-y for 2017 as we expect a softer production growth momentum due to a higher base. This is in line with the management’s expectation of FFB production growth of above 15% y-o-y in 2017.

Meanwhile, production growth from its Malaysia operations might not be as strong as Indonesia’s due to the replanting programme in Malaysia.

We are expecting Genting Plantations to report better quarter-on-quarter (q-o-q) and y-o-y results in the second quarter ending June 31, 2017 on the back of better FFB production q-o-q and y-o-y and supported by higher crude palm oil prices y-o-y.

Based on our channel checks, Genting Plantations sold most of its production at spot prices, which were traded higher than future or forward pricing.

We maintain our earnings per share forecasts of 48.4 sen, 52.7 sen and 56.2 sen for 2017, 2018 and 2019 respectively.— UOB Kay Hian, June 19