We are maintaining Genting Plantations as a BUY with our FV lowered to RM10.59 as we trim our CY13 earnings forecast to RM427.5m, which is 4.6% lower than consensus. We believe the company will turn in better operational performance numbers next year, with production likely to climb by 10%-15% with the tripling of its output in Indonesia due to the improving age profile of its trees. The stronger production will likely help the company at least break even in Indonesia next year, as Genting Plant is currently already profitable at the operational level.
A better 3Q, but deficit stands. Genting Plant’s 3Q core earnings of RM95.3m were significant better by 27.9% q-o-q, driven by a recovery in its FFB production. This brought its YTD core earnings to RM240.2m, which means its full-year earnings will fall short of our and consensus forecasts of RM393.1m and RM370.1m respectively. We note that since its 2Q results, the consensus forecast has been reduced by 13.2% to the current levels.
Production to increase further in 4Q. Management indicated that its Malaysian production in 4Q will likely be some 10% higher than in 3Q, with the caveat that production in December does not drop more than 10% against November’s numbers. This is due to the later peaking of its production, particularly in Sabah where the seasonal upswing started later than usual this year.
Progress in Indonesia. The company has made fairly good progress in Indonesia in increasing its planted hectarage and production. New planting amounted to 1,500 ha in 3Q, bringing its YTD new planting to 4,000 ha. It expects to hit 6,000 ha of new planting by end-2012. Together with the new JV, which brings in another 14k ha of planted area, its planted area in Indonesia will reach 60k ha, which is roughly the same size as its estates in Malaysia. In terms of production, its new mill was completed in September and with the oil extraction rate at 24%, made a small operating profit in its first month.
A better 3Q, but deficit stands. Genting Plant’s 3Q core earnings of RM95.3m were significant better by 27.9% q-o-q, driven by a recovery in its FFB production. This brought its YTD core earnings to RM240.2m, which means its full-year earnings will fall short of our and consensus forecasts of RM393.1m and RM370.1m respectively. We note that since its 2Q results, the consensus forecast has been reduced by 13.2% to the current levels.
Production to increase further in 4Q. Management indicated that its Malaysian production in 4Q will likely be some 10% higher than in 3Q, with the caveat that production in December does not drop more than 10% against November’s numbers. This is due to the later peaking of its production, particularly in Sabah where the seasonal upswing started later than usual this year.
Progress in Indonesia. The company has made fairly good progress in Indonesia in increasing its planted hectarage and production. New planting amounted to 1,500 ha in 3Q, bringing its YTD new planting to 4,000 ha. It expects to hit 6,000 ha of new planting by end-2012. Together with the new JV, which brings in another 14k ha of planted area, its planted area in Indonesia will reach 60k ha, which is roughly the same size as its estates in Malaysia. In terms of production, its new mill was completed in September and with the oil extraction rate at 24%, made a small operating profit in its first month.
Trimming forecast. With 4Q CPO price being weaker but mitigated by its higher production and lower cost due to low fertilizer application, we are trimming our FY12 earnings forecast to RM345.2m from RM393.1m previously. Its cost for 2013 is likely to be some RM50–RM100 per tonne higher than this year’s, with the higher labour cost mitigated by a 7% decline in fertilizer price. We are factoring in the cost of production at RM1,350 per tonne for FY13 compared to RM1,100 previously and a 10% growth in production. As a result, our forecast is cut to RM427.5m from RM457.5m previously. Our revised FY13 forecast is now lower than consensus’ despite our more bullish CPO price assumption. Genting Plant remains a BUY, with a lower sum-of-parts FV of RM10.59.
Source: OSK
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