We are keeping our Buy call on Genting Plantations (Genting
Plant), but trim our FV to RM9.78 to factor in higher production costs. We
continue to view Genting Plant as a fantastic company to own although it is
going through a rough patch currently. The company’s total
landbank of 165k ha provides it with plenty of long term growth potential going
forward. Should its recent JV materialize, its landbank will be further boosted
to 240k ha. The company’s strong balance sheet, with RM555.7m or RM0.73
net cash per share, will amply support its growth needs.
Below forecasts. On annualized basis, Genting
Plant’s 1QFY12 results were 31.3% below our full-year forecast for RM399.3m and
41.1% below consensus’ expectation of RM466.1m. The 1Q earnings only made up
17.0% of our full-year forecast. Management attributed this to slower than
expected production growth and increase in costs, namely fertilizer and labour.
Guiding down
production numbers. Management is guiding for lower production from its
Malaysian estates this year. Although 1Q production rose by some 2.9% y-o-y,
April continued to be weak, dragging down its first 4 months’ production into a
negative 5.7% growth. Despite the uptick in May, management thinks its
Malaysian production could be some 5% lower, but offset by stronger production
from its Indonesian estates. We are not overly concerned given that the current
weak production can be traced to dry weather some 2 years ago, the effect of
which should not continue into 2H.
Property doing well.
The property division performed well, with profits more than doubling that in
1Q last year. With new sales continuing to improve to RM32.8m in 1Q this year
vs RM21.4m last year, we are confident the momentum should sustain.
Pruning our forecast.
Although we remain optimistic of a better showing in 2H, we are conservatively
lowering our forecast for FY12 to
RM382.6m, factoring in a higher production cost of RM1,200 per tonne. Note that
our forecast was 14.3% lower than consensus prior to the release of the
results. We are maintaining our forecast for FY13 for now.
Maintain Buy. Our
forecast reduction results in our FV being lowered to RM9.78, based on 16x
plantation earnings, plus the value of the company’s Iskandar landbank at a 20%
discount. Undoubtedly, the stock could come under some selling pressure as
consensus numbers are revised to a more realistic level. Given the high
visibility of the company’s long term growth, which will result in the company
having at least twice its current planted acreage, we continue to like Genting
Plant and maintain our Buy call.
Source: OSK
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