Better confidence in Genting Plantations’ short-term production prospect

KUCHING: Analysts have revealed better confidence in Genting Plantations Bhd’s ( Genting Plantations) shortterm production prospect and increased growth expectations for 2017, following a meeting with the group’s Corporate and Finance SVP Lee Ser Wor and team

According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), Genting Plantations’s 2016 production declined seven per cent to 1.61 million metric tons (MT), whereby Malaysian production fell 12 per cent due to replanting and delayed drought impact, but was partly offset by a nine per cent improvement in Kalimantan driven by maturing area of circa 3,200 hectares (ha).

“Looking ahead, we think Kalimantan should see another boost in 2017 on yield recovery and substantial maturing area of 7,000 to 8,000 ha, while Malaysia will see moderate improvement due to replanting of 1,000 to 2,000 ha,” Kenanga Research said.

Nevertheless, thehighmaturing area prompted the research arm to up its financial year 2017 estimate ( FY17E) fresh fruit bunch (FFB) growth from 15 per cent to 18 per cent, brightening the plantation segment’s upstream outlook in conjunction with highly supportive crude palm oil (CPO) prices (year-to-date (YTD) RM3,280 per MT).

On Genting Plantations’ downstream business, Kenanga Research highlighted management as noting that the group’s 600,000 MT capacity refinery (a 72 per cent-28 per cent joint venture (JV) with Musim Mas Group) started operations in January 2017.

“We understand that Genting Plantations plans to fill the capacity with its Sabah production (circa 250,000 MT), but expect more purchases of external CPO to achieve optimal utilisation of more than 60 per cent.

“Meanwhile, plans for its metathesis plant are still being finalised and we understand the conversion of its existing biodiesel plant may take up to two years for completion once approved,” the research arm said.

With the refinery still in gestation period and a fairly long horizon on the bio-refinery plant, the research arm expected limited earnings contribution from this segment in the first half of 2017 (1H17).

Meanwhile, property outlook was neutral overall as Kenanga Research expected weak property development progress to be offset by potential retail growth.

It noted that the Johor property market continued to soften in 2016, with circa RM100 million sales value (compared to circa RM150 million in FY15, ex-land sales).

Going forward, although Kenanga Research believed property launches could remain muted, management did not rule out land divestments as a way to unlock value in Genting Plantations’ land banks.

The research arm has however, pointed out that Genting Plantations’ retail businesses should see some upside on the opening of the Genting Premium Outlets (GPO) slated for the first quarter of 2017 (1Q17).