Genting Plantations (GENP MK, BUY, FV RM10.13, Last Close: RM9.53)

We are maintaining our Buy call on Genting Plant with  our  FV unchanged at RM10.13. Genting Plant is a core Malaysian plantation holding and one of the biggest, best managed and  most  highly focused. While  its  PE valuation looks stretched, this is due to the stock pricing in the value of its landbank in Iskandar Region, which we estimate  to be  worth between RM1.71  and  RM2.13 per share. Knocking off the Iskandar land, Genting Plant  is  trading at 14.7x CY12 and 13.6x CY13 earnings.

Highly leveraged to CPO price. Being an upstream plantation player in Malaysia and by virtue of the group  being a spot seller, Genting Plant’s profitability is highly leveraged to crude palm oil price. We estimate that for  every  RM100 increase in CPO price, Genting Plant’s net profit will increase by RM17.1m.

Slow and steady. Genting Plant has been steadily growing its oil palm hectarage in the last 20 years. Since 1991, it has increased its planted area every single year without fail, bringing it from 20,401 ha to 93,503 ha within a span of 20 years. This gives the company a long term hectarage CAGR of 7.9%.

Growth focused on Kalimantan. Since 2007, and armed with a net cash balance sheet, Genting Plant started its expansion in Kalimantan as land in Malaysia became scarce and too expensive. As of end-2011, Genting Plant had 33,922 ha of oil palm planted areas in Kalimantan.

Production growth. Its estates in Malaysia and Indonesia are both supportive of further production growth although the bulk the growth will come from its Kalimantan estates. Assuming that Malaysia plantation's production stays flattish going forward, Genting Plant's FFB production will increase to 2.086m tonnes by 2021 based on its existing planted area and conservative peak FFB yield of 24 tonnes per ha. This implies a 5.1% CAGR over the next 10 years.

Owner of valuable land in Johor. To our knowledge, Genting Plant is the second largest landowner in Johor’s Iskandar Region after UEM Land. Other than 96 ha of development land at its Indahpura property project, Genting Plant also owns some 2,600 ha of oil palm plantations adjacent to its Indahpura project.

Source: OSK188