EVEN as crude palm oil (CPO) price has climbed to a high of RM4,400/metric tonne in recent times, much of this feat has not been reflected in the share price of Bursa Malaysia-listed plantation stocks.
Genting Plantations Bhd (GENP) is no exception with its share price having declined more than 30% year-to-date (YTD), primarily out of ESG (environmental, social and governance) concerns that are often associated with Malaysian-listed planters.
Nevertheless, Kenanga Research came away from a meeting with GENP reassured of its near-term upstream outlook which will overshadow a weak downstream performance.
“With a wide POGO (palm oil-gasoil) spread of circa US$450/MT (vs three-year average of circa US$150/MT), we expect downstream to remain challenging,” commented analyst Adrian Kok in a company update.
“However, the weak downstream will be overshadowed by stronger upstream. While the view is that prices are likely to remain elevated when compared to 2020 (circa RM2,800/MT), there are more downside risks than upside to current CPO prices.”
Although the management expects to keep FY2021’s production cost below FY2020’s level of circa RM1,800/MT on production growth, Kenanga Research opined that production cost could creep up on higher fertiliser cost (circa 10%) and potentially higher fertiliser application rate in 2Q-3Q FY2021 given lower application in 1Q FY2021 (circa 15%) due to wet weather.
Given that the group is sitting on a still growing war chest of circa RM800 mil, the research house noted that merger & acquisition (M&A) opportunities to boost planted area and production growth can be found.
“We think the group is more likely to be interested in estates in South Kalimantan where its Indonesian estates are concentrated,” suggested Kenanga Research. “GENP’s latest upstream acquisition in 2017 was also in South Kalimantan at an EV (enterprise value)/planted hectarage of circa RM65,000.”
On the ESG-front, GENP’s improvements include greater disclosure for its Indonesia division such as traceability and land area under sustainable certification.
All-in-all, the research house maintained its “outperform” rating on GENP with rolled-over FY2022E sum-of-parts (SOP)-based target price of RM7.65.
“After YTD-decline of more than 30%, and with a re-opening angle in the form of premium outlets, we think valuations could have undershot on the downside,” projected Kenanga Research.
“On a PBV (price-to-book value)-basis, GENP is valued at about 1.1 times which at a discount to ESG-laden FGV (Holdings Bhd). Strong footfall from the eventual new Genting theme park could also be a catalyst. “
At the close of today’s mid-day trading, GENP was down 2 sen or 0.3% to RM6.54 with 18,800 shares traded, thus valuing the company at RM5.87 bil. – Aug 4, 2021
