Genting Plantations - Losses in Indonesia narrowing BUY

- Maintain BUY on Genting Plantations Bhd (GenP), with an unchanged fair value of RM9.55/share. Our fair value for GenP implies an FY13F PE of 16x.

- GenP’s FY12 results were in-line with our forecast and consensus expectations.

- From GenP’s conference call yesterday, we understand that the group has been exporting its CPO to take advantage of the zero tax rates in January and February 2013 and avoid the RM100/tonne discount to spot prices imposed by the refiners in Sabah.

- About 20% of GenP’s CPO production was exported in the first two months of FY13F. Hence, unlike other plantation companies, GenP did not face any substantial increase in CPO inventory as at end-FY12.

- For FY13F, GenP’s FFB production in Malaysia is expected to be flat. In fact, FFB output growth could weaken in 2HFY13 due to the high-base effect in 2HFY12 and strong YoY production growth in 1HFY13.

- GenP’s FFB production in Indonesia is expected to triple from 81,000 tonnes in FY12 to 240,000 tonnes in FY13F. Indonesia is envisaged to account for 16% of group FFB production in FY13F compared with 6% in FY12.

- GenP’s plantation division in Indonesia recorded a loss of RM19.6mil in FY12 versus RM15.9mil in FY11. The division’s loss narrowed from RM6.4mil in 3QFY12 to RM2mil in 4QFY12 as its palm oil mill in West Kalimantan swung into profitability.

- Losses of the plantation division in Indonesia are expected to decline further as GenP’s palm oil mill in Central Kalimantan had already been completed in January 2013.

- Plantation production costs were RM1,314/tonne in FY12 versus RM1,064/tonne in FY11. GenP hopes to maintain its production cost per tonne at this level for FY13F.

- Higher labour costs arising from the implementation of the minimum wage are anticipated to be offset by lower fertiliser costs.

- Due to the implementation of the minimum wage in Malaysia, we understand that labour costs would increase by RM5mil to RM6mil in FY13F.

Source: Kenanga