Genting Plantations’ earnings likely to miss expectations on weaker FFB production
KUCHING: Genting Plantations Bhd’s (Genting Plantations) earnings in the first half of financial year 2016 (1HFY16) is likely to miss expectations in the eyes of MIDF Amanah Investment Bank Bhd (MIDF Research) due to weakerthan-expected fresh fruit bunch (FFB) production.
It was estimated by the research arm that Genting Plantations’ 1HFY16 core net income ( CNI) of RM76 million to RM81 million to barely be able to meet 27 to 29 per cent of its full year estimates of RM281 million to RM283 million.
“The negative deviation could be attributed to the weaker than expected FFB production in 1HFY16 which dropped 15 per cent year over year ( y- o-y) against earlier market and management expectations of flattish FFB production,” said the research arm.
Additionally, the research arm also suggested that the lagged impact of EL Nino weather phenomenon contributed to an ongoing weak FFB production.
With Genting Plantations’ second quarterly financial year 2016 (2QFY16) results scheduled to be released in August, the research arm is estimating it’s 2QFY16 CNI to come in higher against 1QFY16’s CNI and to be in the range of RM40 million to RM45 million.
“CNI for 2QFY16 is expected to come in higher agaisnt CNI of RM35.7 million in 1QFY16 due to higher crude palm oil (CPO) prices and seasonally higher FFB production,” said the research arm.
Despite this, the research arm is estimating that on a year basis, 2QFY16’s CNI to be flattish or lower as the 18 per cent y- o-y increase in CPO prices may not be enough to offset the 18.7 per cent y- o-y decline in FFB production.
As a result, the realised CPO price of Genting Plantations is expected by the research arm to be lower than CPO prices in Malaysia due to the export levy in Indonesia.
Meanwhile, the firm’s property division that has contributed to 16 per cent to total profit before tax in FY15 is not expected perform well due to the challenging property market in Johor.
MIDF Research has decided to maintain a ‘ neutral call for Genting Plantations with a lower target price of RM9.72 from RM9.85. Additionally, the research arm has also revised their earnings forecast by a decline of 28 per cent in FY16 and a decline of 17% per centin FY17.