Thursday, May 26, 2011

Genting Plantations - Overweight: Earnings In Line With Expectations

26 May 2011
Price Target: RM9.50
Share Price: RM7.95


Results
1Q11 reported net profit of RM94.3m accounted for 21.6% and 21.7% of consensus full-year estimates and our full year forecast. We consider the results within expectations as we expect stronger quarters ahead arising from higher FFB output.

Deviations
None.

Dividends
None.

Highlights
More details on GBD acquisition. Management revealed that GBD Holdings Ltd (which it recently acquired for US$13.3m or RM40m), is a biodiesel plant situated on a piece of 33.45 acre land in Lahad Datu. Management said the acquisition is cheap, as: (1) The land itself is already valued at RM21m based on current market price of RM14 psf, which is about half of the acquisition price; and (2) The biodiesel plant (with capacity of 200k tonnes p.a.) is in good condition and the plant has a current replacement cost of US$35m. Management is planning to retrofit the plant as it has recently come across 1-2 deals (which it is hoping to conclude soon), which will allow it to produce high value-added products in the near term. We have yet to reflect this into our forecasts.

Indonesia. GENP has planted 932ha of oil palm in Indonesia in 1Q11, which is relatively lower than last year on the back of weather and claim issues, and it is now guiding a lower planting target of 6,000 ha for 2011 (vs. 15,000 ha that it guided previously) on the back of the slow planting progress. The Indonesian government’s recent moratorium on new permits for logging and palm oil concessions will not affect its planting plan.

Capex. Management lowered its guidance for 2011 capex from RM470m to RM360m mainly on the back of lower planting target in Indonesia.

Risks Downside risks
1) Sharp plunge in CPO prices;
2) Worse-than-expected weather condition that will result in lower-than-expected
FFB yield;
3) Escalating production cost, in particular, production costs; and 4) Labour shortage.

Forecasts
2011-2013 net profit forecasts cut by 3.8-5.1% as we raised our tax effective rate assumptions, based on management’s guidance.

BUY
Positives:
1) High CPO prices; and
2) Increasing contribution from oil palm in Indonesia.

Valuation
TP cut by 2.6% from RM9.75 to RM9.50 to reflect:
(1) Lower net profit forecasts; and
(2) The roll forward of our base year from 2011 to 2012 for valuation purpose. Our new TP is based on 17x revised 2012 EPS of 55.9 sen.

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