Genting Plantations - Positioned for growth from Indonesia BUY

- Maintain BUY on Genting Plantations Bhd (GenP), with an unchanged fair value of RM10.65/share, which is based on a PE of 16x on FY13F EPS. In the past seven years, GenP’s PE band ranged from a low of 5.2x to a high of 27.5x. Average PE was 15.9x.

- According to  Bloomberg consensus estimates, GenP’s FY13F PE of 14.2x is almost similar to IJM Plantations’ (IJMP) FY13F-FY14F PEs of 13x to 14x. 

- Compared to IJMP, GenP started planting in Indonesia earlier. Hence, it has a larger size of planted areas in the country. GenP’s planted areas in Indonesia amounted to almost 34,000ha as at end-FY11 versus IJMP’s 22,000ha. 

- We like GenP for its landbanking strategy. Upon completion of the 60:40 joint venture agreement for the acquisition of 74,000ha of land in Central Kalimantan, GenP’s landbank in Indonesia would be larger than Kuala Lumpur Kepong’s (KLK). This would help sustain GenP’s long-term profit growth.  

- Operationally, GenP is expected to enjoy a double-digit percentage surge in FFB production in Indonesia in FY13F. At the group level (including Malaysia), we estimate GenP’s FFB output growth at 14% for FY13F. Indonesia is envisaged to account for 12% of group FFB production in FY13F.    

- Due to the jump in FFB output and completion of two palm oil mills in Kalimantan in 2HFY12, we anticipate losses in GenP’s plantation division in Indonesia to decline in FY13F. The division could swing into profitability by FY14F. GenP’s plantation operations in Indonesia recorded a loss of RM16mil in FY11.

- Production costs of the plantation division in Malaysia are expected to average about RM1,250/tonne in FY12F. Operating costs per tonne are envisaged to ease in the coming few quarters from 1QFY12’s high of RM1,400/tonne-RM1,500/tonne on the back of lower fertiliser application and higher palm oil production. 

- GenP is anticipated to start development of the second phase of Johor Premium Outlet (JPO) by year-end. The second phase is expected to cost less than RM150mil as there would not be any land cost. Construction of the second phase of JPO should be completed by end-FY13F. There would be fewer than 80 outlets in the second phase of the JPO.  

Source: AmeSecurities