Genting Plantations poised to chart strong earnings in Q4

Malaysian palm oil futures snapped a three-day rally on Thursday evening, falling from a near two-month high reached in the previous session and tracking weaker rival oils.

PETALING JAYA: Genting Plantations Bhd, which posted a 160% rise in earnings for the third quarter ended September 30 2016, is expected to repeat a commendable performance in the final quarter buoyed by strong crude palm oil (CPO) output and higher selling price. 

Maybank IB Research said on Thursday it anticipate an equally strong, if not a better fourth quarter (Q4 16)earnings  in anticipation of strong output in Indonesia and high spot CPO average selling price (ASP). adding that the company has maintained its 5-6% year-on-year (y-o-y) fresh fruit bunch (FFB) output growth guidance for 2016. 

The research house said company’s nine month core profit met 65% of its full-year forecast and was within expectations, adding that it was maintaining  its hold call on the stock with an   unchanged revised net asset value target price (RNAV TP) of RM10.18.

Genting Plantations reported a Q3 16 headline net profit of RM98mil (+160% y-o-y, +140% q-o-q ). Stripping aside a small foreign exchange (FX) gain of RM2mil, Q3 16 core net profit of RM96mil (+156% y-oy, +160% q-o-q) brought the nine months core net profit to RM167mil (+13% y-o-y), which met 65%/69% of the brokerage’s and consensus full-year estimates. 

Its plantation division remains the key contributor (93% of Q3 16 earnings before interest, taxes, depreciation and amortisation (EBITDA) while property remained weak on slow property sales.

Meanwhile, MIDF Research is maintaining a neutral stance on the stock with an unchanged target price of RM9.72 as well maintaining  the company's earnings forecast for financial year 2016 and 2017.

“We are also keeping our assumption of 5% FFB production contraction which is also in line with management expectation of 5%-6% production decline. Our target price of RM9.72 is based on sum-of-parts valuation. Maintain neutral call on the company as upside may be limited by its rich valuation whilst downside is supported by the good fundamental with young oil palm profile (with 30% immature oil palm) which suggests good long-term FFB production growth prospect,’’ the research outfit noted.