Genting Plantations - Indon FFB output could triple in FY13F BUY

- Maintain BUY on Genting Plantations Bhd (GenP), with a lower fair value of RM9.65/share. Our fair value for GenP implies an FY13F PE of 16x. GenP’s PE band ranged from a low of 5x to a high of 28x in the past seven years. The group’s average PE was 16x. 

- GenP’s annualised FY12F results would have been within our forecast. However, in view of the decline in CPO prices in 4QFY12, we have downgraded GenP’s FY12F forecastby 5%. 

- From GenP’s conference call yesterday, we understand that the group would be achieving its highest FFB production in November. 

- GenP’s FFB production in Malaysia is estimated to be 10% higher in 4QFY12 versus 3QFY12. After the good harvest in November, FFB production is expected to decline 5% to 10% in December. For FY12F, GenP’s FFB production is envisaged to slide 4% to 5%. 

- GenP’s FFB production is expected to expand 15% in FY13F. The group’s FFB output in Indonesia is forecast to surge three-fold to 250,000 tonnes in FY13F. In Malaysia, GenP’s FFB production is estimated to climb 3% to 5% in FY13F. By early next year, GenP’s planted areas of roughly 60,000ha in Indonesia would be as large as Malaysia. 

- We gather that the group’s first palm oil mill in Indonesia, which commenced operations in September, has already recorded a small operating profit. This is in spite of the fall in CPO prices. GenP has another palm oil mill located in Central Kalimantan, which would start operations in early-2013. 

- Due to the implementation of the minimum wage in Malaysia, we understand that production costs would increase by RM50/tonne to RM100/tonne in FY13F from RM1,300/tonne in FY12F. However, the impact may not be severe if the increase in the cost is matched by higher productivity.   

- We gather that the minimum wage in Kalimantan only applies to daily and monthly rate workers. The minimum wage does not apply to piece-rated workers including harvesters who are paid incentives based on their productivity.

- Fertiliser costs for FY13F are expected to be lower than FY12F.

- We also understand that GenP has been selling some quantities of CPO at one-month forward prices. This is due to the huge disparity between the physical and futures market prices. The group held back some inventory in October to be sold and delivered at November prices.

Source: AmeSecurities