Genting Plantations - 1QFY12 Results

Result

- Genting Plantations’ 1Q2012 net earnings stood at RM78.8m, tumbled 16.2% q-o-q and 16.5% y-o-y. Meanwhile, revenue was recorded at RM272.7m, slid 23.5% q-o-q and flat y-o-y.

- Below expectation. Net earnings of RM78.8m was slightly below our expectation by meeting 18% of our estimates and 17% of street’s. However, revenue was in line with our expectation of weaker 1Q2012, accounted for 20.5% of our estimates.


Comment

- Seasonally lower earnings. We reckon lower 1Q2012 earnings was mainly attributable to seasonal weaker FFB production in 1Q (-25% q-o-q). On a y-o-y basis, the Group achieved 3% growth in FFB production, mitigated the lower average selling price of CPO (RM3179/mt in 1Q2012 against RM3682/mt in 1Q2011).

- Higher production cost. On a y-o-y basis, operating margin declined from 49% in 1Q2011 to current level of 38%. We believe decline in margin was due to higher wages and fertilizer cost. The acceleration of fertilization activity in 1Q2012 and higher fertilizer cost triggered by the higher feedstock price and natural gas exacerbated the margin erosion.

- Higher turnover contribution from property segment. Turnover contribution from property segment inched up 39% y-o-y, cushioned the lower turnover from plantation segment. We reckon the payoff from property segment is evident with growing demand for its industrial and commercial properties.

- Indonesian plantation segment continued to be in the red as it remains in the early stage of development. For the recent announcement of joint venture in acquiring 74k hectares oil palm plantation land in Kalimantan, we remain positive with the Group’s stronger plantation presence in Indonesia over a longer period with decent earnings to be recognized from 2016 onwards.


Earnings Outlook/Revision

- We revise downward our 2012-2014F net earnings estimates by 7%-9% following higher operating cost by trimming the Group’s operating margin from 46% to 42%. Meanwhile, we maintain our revenue forecasts for 2012-2014F.


Valuation & Recommendation

- Maintained HOLD with a lower target price of RM9.70 (previous target price of RM10.49), pegging at 16x 2013F EPS. We are positive on the Group’s longer-run prospect, banking on its stronger footprint in Indonesia.

earning miss estimate 16% q-o-q/m-o-m

+1 mabs