August 4, 2011

Genting Plantations: Expect strong 2Q11 results

Stock Name: GENP
Company Name: GENTING PLANTATIONS BERHAD
Research House: HWANGDBSPrice Call: BUYTarget Price: 10.10



Genting Plantations Bhd
(Aug 4, RM7.83)
Maintain buy at RM7.81 with revised target price of RM10.10 (from RM10.65): Based on its filings with Bursa Malaysia, Genting Plantations' fresh fruit bunches (FFB) output surged 38% quarter-on-quarter (q-o-q) and 27% year-on-year (y-o-y) in 2Q11 because of a small 1Q11 base and seasonally higher yields.

Coupled with resilient CPO prices that averaged RM3,349 per tonne in 2QFY11 (-8% q-o-q, +32% y-o-y), we expect 2Q11 earnings to surge 21% q-o-q (minimal contribution from property). We understand the plantations expanded by 1,500ha in 1H11, slightly behind our forecast based on annualised data.

After imputing slightly lower crude palm oil (CPO) price forecasts on stronger ringgit expectations, we adjusted FY11 to FY13F earnings by between -1.3% and +1.7%. Our sum-of-parts (SOP) derived target price is nudged down 5% to RM10.10 after imputing higher capital expenditure due to a larger-than-expected increase in new planting costs.

We continue to expect lower CPO prices in 4QCY11 on yield recovery and new maturities.

Genting Plantations' Johor Premium Outlet is on track for grand opening in November 2011. The company still has 2,225ha of landbank in Kulai, Johor, the development of which should offer significant upside potential going forward. The realisation of this would be an additional catalyst for the stock, as every RM1 psf increase (from our RM10 psf base assumption) would raise our SOP-derived target price by 1.9% (40% discount to revised net asset value), based on our sensitivity analysis.

We expect Genting Plantations' Indonesia FFB output to start to contribute meaningfully next year, following the completion of its first mill there. Its own FFB output is projected to rise by 9% compound annual growth rate up to FY13, premised on a decent increase in maturing estate area in Indonesia. ' HwangDBS Vickers Research, Aug


This article appeared in The Edge Financial Daily, August 5, 2011.

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