Stock Name: GENP
Company Name: GENTING PLANTATIONS BERHAD
Research House: AFFIN
Genting Plantations Bhd
(March 17, RM6.69)
Maintain buy at RM6.60, target price at RM7.48: New plantings have raised planted area in Indonesia to 17,695ha and total planted area for the group to about 77,200ha - an increase of almost 30% from 59,534ha in 2007.
These new plantings will mature progressively, with over 1,000ha starting to yield fruits this year. However, the big jump in fresh fruit bunch (FFB) production would be in 2013 when more palms reach maturity and some approach or reach prime, which is normally seven years after plantings.
Including new plantings so far in this year, total Indonesian planted area is around 20,000ha. The target this year is again 20,000ha. The capital expenditure (capex) allocated for 2010 is about RM300 million, to be funded with about 70% of debt and 30% of equity.
Total borrowings could rise to RM300 million by end-2010, still a very manageable level compared to group cash reserves of RM498 million as at end-2009 and rising due to buoyant CPO prices.
High interest costs arising from initial massive capex plans coupled with low initial yields however implies continued marginal losses in the Indonesian operations until 2013/14.
Production, depressed in 2009, expected to rebound to 2008 level FFB production declined by 6.1% in 2009 to 1.16 million tonnes from 1.23 million tonnes in 2008 due to unfavourable weather conditions.
Subject to weather conditions in the next 10 months, management expects FFB production in 2010 to reach the level achieved in 2008, a growth of around 7%. FFB production increased by 5.8% year-on-year in Jan-Feb 2010.
Cost of production in 2009 was RM1,031/MT, up 7.6% y-o-y and slightly above management's target of RM1,000/MT due to lower prices of fertiliser supplies secured as well as lower FFB yields in 2009.
Fertiliser requirements for 1HFY2010, which is more than 50% of annual usage, have been secured at prices 10%-12% lower than in FY09. However, prices have risen again with crude and other commodity prices, thereby potentially pushing up costs in 2HFY10.
Management hence expects average FY10 cost of production to be around last year's level.
With management's focus on growing the plantation business and four township developments located in Kulai, Batu Pahat, Sg Petani, and Melaka (at tail-end), contributions from the property division remains small. However, activities may be building up nicely soon in its Indahpura development in Kulai.
Approximately 150 acres (61ha) has just been given to the state government for a Cyberjaya-type development while the 50:50 joint venture to establish Chelsea Premium outlets is expected to be finalised soon, with the first outlet in Indahpura likely to be in operation by 1HFY11.
We are tweaking our assumptions on FFB production (-3.6% to 1.23 million tonnes) and cost of production (+5% to RM1,050/tonne), we are trimming FY10, FY11 and FY12 net profit forecasts by 5.2%, 8.1% and 8.0%, respectively. CPO price assumptions are unchanged at RM2,450 in 2010 and RM2,550/ tonne in 2011-13.
Its stock price has appreciated by another 7.8% in the last one month. But we see room for further upsides. At RM6.60, the stock is trading at a CY10 PE (price earnings) of 15 times compared to between 16 times and 20 times for larger planters like IOI Corp, KL Kepong and Sime Darby.
Going forward, we see calendar year 2011 PE dropping to 13.2 times. Based on our DPS (dividend per share) forecast of 10 sen, dividend yield is an unexciting 1.5%. But this is not unexpected as the company invest heavily to expand its planted hectarage significantly. Target price is maintained at RM7.48, which implies a CY10 PE target of 17 times, pending an upgrade. - Affin Research, March 17 This article appeared in The Edge Financial Daily, March 18, 2010.
Company Name: GENTING PLANTATIONS BERHAD
Research House: AFFIN
Genting Plantations Bhd
(March 17, RM6.69)
Maintain buy at RM6.60, target price at RM7.48: New plantings have raised planted area in Indonesia to 17,695ha and total planted area for the group to about 77,200ha - an increase of almost 30% from 59,534ha in 2007.
These new plantings will mature progressively, with over 1,000ha starting to yield fruits this year. However, the big jump in fresh fruit bunch (FFB) production would be in 2013 when more palms reach maturity and some approach or reach prime, which is normally seven years after plantings.
Including new plantings so far in this year, total Indonesian planted area is around 20,000ha. The target this year is again 20,000ha. The capital expenditure (capex) allocated for 2010 is about RM300 million, to be funded with about 70% of debt and 30% of equity.
Total borrowings could rise to RM300 million by end-2010, still a very manageable level compared to group cash reserves of RM498 million as at end-2009 and rising due to buoyant CPO prices.
High interest costs arising from initial massive capex plans coupled with low initial yields however implies continued marginal losses in the Indonesian operations until 2013/14.
Production, depressed in 2009, expected to rebound to 2008 level FFB production declined by 6.1% in 2009 to 1.16 million tonnes from 1.23 million tonnes in 2008 due to unfavourable weather conditions.
Subject to weather conditions in the next 10 months, management expects FFB production in 2010 to reach the level achieved in 2008, a growth of around 7%. FFB production increased by 5.8% year-on-year in Jan-Feb 2010.
Cost of production in 2009 was RM1,031/MT, up 7.6% y-o-y and slightly above management's target of RM1,000/MT due to lower prices of fertiliser supplies secured as well as lower FFB yields in 2009.
Fertiliser requirements for 1HFY2010, which is more than 50% of annual usage, have been secured at prices 10%-12% lower than in FY09. However, prices have risen again with crude and other commodity prices, thereby potentially pushing up costs in 2HFY10.
Management hence expects average FY10 cost of production to be around last year's level.
With management's focus on growing the plantation business and four township developments located in Kulai, Batu Pahat, Sg Petani, and Melaka (at tail-end), contributions from the property division remains small. However, activities may be building up nicely soon in its Indahpura development in Kulai.
Approximately 150 acres (61ha) has just been given to the state government for a Cyberjaya-type development while the 50:50 joint venture to establish Chelsea Premium outlets is expected to be finalised soon, with the first outlet in Indahpura likely to be in operation by 1HFY11.
We are tweaking our assumptions on FFB production (-3.6% to 1.23 million tonnes) and cost of production (+5% to RM1,050/tonne), we are trimming FY10, FY11 and FY12 net profit forecasts by 5.2%, 8.1% and 8.0%, respectively. CPO price assumptions are unchanged at RM2,450 in 2010 and RM2,550/ tonne in 2011-13.
Its stock price has appreciated by another 7.8% in the last one month. But we see room for further upsides. At RM6.60, the stock is trading at a CY10 PE (price earnings) of 15 times compared to between 16 times and 20 times for larger planters like IOI Corp, KL Kepong and Sime Darby.
Going forward, we see calendar year 2011 PE dropping to 13.2 times. Based on our DPS (dividend per share) forecast of 10 sen, dividend yield is an unexciting 1.5%. But this is not unexpected as the company invest heavily to expand its planted hectarage significantly. Target price is maintained at RM7.48, which implies a CY10 PE target of 17 times, pending an upgrade. - Affin Research, March 17 This article appeared in The Edge Financial Daily, March 18, 2010.
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