Wednesday, June 15, 2011

Genting Plantations - Eyeing 5-6% Output Growth In 2011

15 June 2011
Price Target: RM9.50
Share Price: RM8.02


Highlights
# We walked away from the meeting with a positive feeling. Foremost, management is of the view that its FFB output will grow by 5-6% in 2011. As for CPO price outlook, management believes the recent high palm oil inventory will likely weigh down on CPO prices slightly in the near term. However, it has no intention to lock in more forward sales.

# It has made good progress in Indonesian planting. But the recent slow planting progress in Indonesia was mainly due to uncertainties arising from the Indonesian moratorium. Management remains positive on its planting target that will normalize back to 10,000-15,000 ha p.a. beyond 2011, as the finalization of the moratorium has cleared most (if not all) uncertainties with regards to forest clearing and its land is not affected by the latest moratorium.

# On property front, the construction work for Premium Outlets, Johor is scheduled to be completed in September 11 and commence operation by November 11. The Premium Outlets has secured about 95% tenancy rate and management revealed that its targeted return on this project is in the high-teens.

# Has the intention to expand its plantation land bank further and it is also exploring on oil palm land in other parts of the Southeast Asia region, such as the Southern Philippines and Cambodia, given the increasing difficulty in acquiring oil palm land in Indonesia.

Catalysts
# High CPO price to sustain into 2011;

# Better-than-expected sales at the property division; and

# Higher-than-expected dividends.

Forecasts
Maintained.

Risks: Downside risks
(1) Sharp plunge in CPO prices;
(2) Worse-than-expected weather condition, resulting in lower-than-expected FFB
yield;
(3) Escalating production cost; and
(4) Labour shortage.

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

Negatives:
Low share liquidity.

Valuation
Target Price (TP) maintained at RM9.50, based on 17x FY12/12 EPS of 55.9 sen.



Source: HLIB Research

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