CPO save the day for Genting Plantations
KUALA LUMPUR: Genting Plantations Bhd’s (Genting Plantations) normalised earnings for its fourth quarter of financial year 2020 (4QFY20) climbed by 26.1 per cent year on year (y-oy) to RM79 million, leading to cumulative FY20 normalised earnings of RM235.8 million, which was primarily driven by higher crude palm oil (CPO) price.
This came in within expectations of MIDF Amanah Investment Bank Bhd (MIDF Research) and consensus, as it accounted for about 97.2 and 97 per cents of the full year FY20 earnings forecasts.
Moving forward, the research house believed favourable CPOs price would further support Genting Plantations’ earnings growth momentum in FY21.
“The higher FY20 earnings were mainly driven by a recovery in average selling price (ASP) of CPO and crude palm kernel oil (CPKO) to RM2,511 per metric tonne (MT) and RM1,519 per MT respectively,” it recapped in a report yesterday.
“This led to an expansion in earnings before interest and tax (EBIT) margin by 5.3 percentage points y-o-y to 14.5 per cent. We presume that the group will be able to continue to maintain a healthy profit margin given the elevated CPO price on a yearover-year basis.”
IN FY21, MIDF Research expect Genting Plantations to see better fresh fruit bunch (FFB) output. This follows its FY20 FFB production which showed a smaller decline by five per cent y-o-y to 2.1 million MT.
The decline was primarily caused by the lag effect of adverse weather conditions in 2019, and a decline in harvesting areas in Malaysia from replanting activities.
“Nonetheless, we opine that the group’s FFB yield will continue to improve from an increase in harvesting area and a better age profile (from its Indonesian estate) and replanting activities (from Malaysia estate),” it continued.
The property segment registered revenue of RM94.4 million, down by 35 per cent on the back of weaker sales, as well as slower progress of construction works. In tandem, FY20 EBITDA for the property segment declined by 17.5 per cent to RM20.4 million due to lower margin for its project.
In the longer term, MIDF Research anticipate a rebound in Genting Plantations’ property segment on revival of the Home-Ownership campaign as announced by the Malaysian Government and relaxation of movement control irder (MCO) rules.
Meanwhile, EBITDA for its downstream segment was down by 24.9 per cent y-o-y to RM33.5 million in FY20. This was predominantly due to lower sales of refined palm products which was impacted by MCO restrictions. Moving forward, MIDF Research believed that the current wide palm oil-gas oil spread will continue to dampen demand for biodiesel.
“We opine the recent upsurge in CPO price to above RM3,000 per MT would help in supporting the group’s earnings growth momentum,” it said. “We also anticipate a recovery in FFB yield in FY21 due to an increase in harvesting area, better age profile - where FFB yield would increase as trees come into maturity soon, and replanting activities.
“On top of that, we also expect the property segment to continue to record better performance in anticipation of resumption in economic activities resulting from the relaxation of MCO rules, and Malaysia kickstarted its largest inoculation programme against Covid-19 with the administration of the PfizerBioNTech Covid-19 vaccine. All in, we expect these factors to support the group’s healthy earnings momentum in the coming quarters.”
The higher FY20 earnings were mainly driven by a recovery in average selling price (ASP) of CPO and crude palm kernel oil (CPKO) to RM2,511 per metric tonne (MT) and RM1,519 per MT respectively.
MIDF Research