PETALING JAYA: Genting Plantations Bhd
’s decision to dispose of its freehold estate land in Melaka for RM333.8mil to Scientex Bhd’s unit is deemed as opportunistic, strategic and earnings accretive for the group, say analysts.
The proceeds will be used by the planter for strategic purposes, including acquiring new oil palm estates, property development and reducing external borrowings, within 12 to 24 months of the completion date.
Kenanga Research, in a note to clients, said while most of Genting Plantations’ 236,439ha landbank are in Indonesia, a sizeable 64,486ha are in Malaysia.
Significantly, the group has its own property development arm with 377ha already set aside for property development – 96% or 363ha are in Johor.
One-fifth of the 214ha Paya Rumput estate is also being replanted, further suggesting the opportunistic nature of the proposed disposal, said the research house.
“The disposal also allows the group to exit from a small stand-alone operation at a decent enough price, which is earnings accretive to Genting Plantations,” Kenanga Research noted.
The group ended its third quarter of the financial year (3Q24) with a net debt of RM1.341bil (26% net gearing), so the proceeds will be welcomed.
Additionally, the research house pointed out that the land disposal is earnings accretive to the group.
“Palm oil income lost from selling the 214ha of estates is around RM1mil to RM2mil a year, while the RM334mil cash proceeds should lift net profit by RM10mil to RM15mil a year.
“This will be from either deposit interest income or debt interest savings if used to repay some of the group’s borrowings,” said Kenanga Research.
Hence, the research house has kept its financial year ended 2024 (FY24) forecast intact, nudging up FY25 forecast core net profit by 2%.
“We are optimistic of Genting Plantations’ earnings for the next quarter or two, thanks to strong upstream margins and the soon-to-be opened Jakarta Premium Outlet,” it said.
Kenanga Research has maintained an “outperform” rating on the stock with a newly revised target price (TP) of RM6.30 per share from RM6 previously.
Meanwhile, Hong Leong Investment Bank (HLIB) Research said the proposed land disposal provides an opportunity for Genting Plantations to unlock and realise the capital appreciation of the land.
This is expected to generate an estimated one-off gain of about RM284.9mil upon completion, said the research house.
Apart from that, the disposal will have minimal impact on the group’s future income stream, as the land is less than 1% of Genting Plantations’ planted area in Malaysia.
As for its balance sheet, HLIB Research said the proposed disposal will bring down the group’s net gearing from 0.28 times as at Dec 31, 2023 to 0.27 times.
The research house has maintained a “buy” call on the stock with an unchanged TP of RM6.06 a share.
CIMB Research, in a report, said it is positive on the land disposal as “the selling price of RM14.50 per sq ft exceeds the independent market value of RM10 per sq ft and represents a price-to-earnings ratio of 208 times, based on the estate’s FY23 operating profit of RM1.6mil”.
Furthermore, the disposal is expected to generate a one-off gain of RM284.9mil, increasing FY25 net profit forecasts by 92%.
However, this gain will be classified as non-core.
The proceeds are likely to be used to partially fund Genting Plantations’ proposed acquisition of 152ha of land in Jakarta for RM676mil, intended for property development.
Alternatively, if the proceeds are used to reduce debt, CIMB Research estimates FY25 net profit could increase by 1.3%.
“As the transaction is pending completion targeted for 2Q25, we have not factored the land disposal into our sum-of-parts (SOP) valuation.
“We maintain a ‘hold’ rating with an unchanged SOP-based TP of RM6.21,” said the research house.
