10 May 2012
Genting Plantations expects CPO production costs to increase to at least RM 1,350 from RM 1,200 per metric tonne last year due to higher fertiliser cost
(GENP opening stock price today (10.5.2012) was RM 9.50)
Genting Plantations Bhd (Genting Plantations) expects the fresh fruit bunch (FFB) contribution form its Sabah estates to rebound strongly this May and June.
After a recent company visit, analysts raised its financial year forecast on higher crude palm oil (CPO) expectations and strong output recovery in the second half of 2012 (2H12) which would offset weakness in 1H12.
According to HwangDBS Vickers Research Sdn Bhd (HwangDBS Research), it raised the company’s financial year 2012 forecast to 2014 forecast (FY12F-14F) net profit by 13 to 23 per cent on higher CPO price expectations.
“Based on our recent visit, we understand that FFB yield in Peninsular Malaysia is expected to remain flat year-on-year (y-o-y) this year, while Sabah yield is expected to improve,” said the research house.
The company projected a two to three per cent increase for its overall FFB output this year, which was slightly lower than the research firm’s FY12 projection of five per cent.
“We understand that in April, FFB volume remained low after registering a 24 per cent quarter-on-quarter dip in 1Q12, but turned around by three per cent y-o-y,” said HwangDBS Research.
This year, the company also expected the FFB output ratio to settle at 42:58 between 1H12 and 2H12. The last tree census was conducted in last December, where the results showed that production for this year increased.
Genting Plantations all-in CPO production cost was RM1,200 per metric tonne (MT) last year. The management expected its production cost to increase marginally to RM1,350 to RM1,400 due to higher fertiliser cost.
HwangDBS Research noted that, “We understand that the labour shortage issue in Sabah is now well under control, compared with last year when the problem was compounded by the wet weather.”
Genting Plantations also had recently disposed of 7.4 hectares (ha) commercial land in Kulai at RM28 per square feet (psf).
The research firm noted that the steady progress of Iskandar Malaysia was the driver for land price appreciation, especially given the successful opening of Johor Premium Outlets (JPO) in Kulai since last December.
Currently, the sales in JPO had been encouraging, although there was no guidance on the potential contribution to the company due to the premature conclusion of tenants’ sales.
HwangDBS Research said that, “Property prices around Kulai continue to appreciate, thanks to the development of JPO there. The company’s largest industrial land was transacted at RM25 psf while commercial land was concluded at RM28 psf.
“For our forecast purposes, we have conservatively assumed RM12 psf for Genting Plantations land bank in Kulai,” added the research firm.
In another note, Genting Plantation would have a potential upside in valuation. The latest 74,000ha land bank expansion in Indonesia via a joint venture with Sin Tek Huat Group was positive for Genting Plantation earnings growth outlook and valuation.
The company would have the largest unplanted land bank upon completion of the deal, the research firm added, “While we assume 8,000 ha and 10,000 new plantings for FY12 and FY13, respectively, there will be further upside when the acquisition is completed by middle of this year.” HwangDBS Research capped a fair value of RM9.58 per share.