AFFIN Hwang has maintained its sell recommendation on Genting Plantations Bhd (GENP) amid a cautious view of the plantation sector.
GENP estates and mills throughout Malaysia and Indonesia remain in operation despite the lockdown in Malaysia. The group is still assessing the impact of the 2.5 weeks closure of its plantations in Kinabatangan, Sabah.
“We expect GENP’s FFB (fresh fruit bunch) production to rise by 2% yoy in 2020E, the lower production from Malaysia offset by higher Indonesia production,” said Affin Hwang.
It makes no change to its 2020-22E core earnings per share for GENP and CPO price assumption of RM2,100-2,450/MT for 2020-22E.
Affin Hwang has ascribed a target price of RM7.50 for GENP given its cautious outlook on the plantation sector. After Sabah’s movement control order (MCO) was lifted for oil palm plantations in six districts, GENP’s estates and mills are finally back in operation.
GENP is still in the midst of accessing its crop conditions. GENP’s FFB production in 3M20 fell by 19% yoy to 449,200 MT. Affin Hwang believes the decline is due to lower output from its Malaysian estates arising from dry weather conditions back in 1H19.
Currently, it expects GENP’s FFB production to increase by 2%-7% in 2020-22E from 2.2 million MT in 2019, as it believes production will pick-up towards 2Q and 3Q as the lagged effect of dry weather normalises.
Based on Affin Hwang’s estimates, a 1% drop in FFB production could potentially lower GENP’s earnings forecasts by about 1-2%. Uncertainties affecting CPO prices have retreated since mid-January 2020 and prices are currently hovering around the RM2,000-RM2,200/MT levels due to global market uncertainty.
It has maintained its CPO price assumption for 2020-22E at RM2,100-RM2,450/MT, given its more cautious stance on the demand outlook and a weak crude oil price environment.
GENP’s property division was also affected by the MCO. In compliance with the Malaysian government‘s directive for closure of all offices and non-essential services providers, all GENP’s property showrooms were also temporarily closed. The research firm opines that this could potentially affect GENP’s property sales for this year.
At 3 pm today, GENP’s shares were traded at RM9.59, up 11 sen from yesterday’s close with 131,300 shares changing hands. – April, 30, 2020
