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Analysts cut Genting Plantations earnings forecasts on lower-than-expected profit

KUALA LUMPUR (May 25): Analysts have lowered their earnings forecasts for Genting Plantations Bhd after it achieved weaker-than-expected net profit for the first quarter ended March 31, 2021 (1QFY21).

Hong Leong Investment Bank (HLIB) Research analyst Chye Wen Fei said in a note today that Genting Plantations’ 1QFY21 core net profit of RM58.2 million came in below expectations, accounting for only 16.2% to 18.6% of his and the consensus full-year estimates, due to a lower-than-expected fresh fruit bunch (FFB) output and property contribution.

“We lower our FY21 to FY23 core net profit forecasts by 22.1%, 16.3% and 11% respectively to reflect lower FFB output and property earnings assumptions,” he said.

He maintained his “hold” rating of Genting Plantations with a lower sum-of-parts (SOP) target price (TP) of RM8.61, from RM9.82 previously, to reflect the downward revision of his core net profit forecasts and updated valuation parameters following the release of the company’s FY20 annual report.

PublicInvest Research analyst Chong Hoe Leong concurred about the group’s performance, saying in a note that Genting Plantations’ results made up only 19.5% and 19.2% of his and the street’s full-year expectations respectively.

The poor results, according to him, were mainly due to losses in downstream manufacturing and lower-than-expected plantation earnings.

“We cut our FY21 to FY23 earnings forecasts by 10% after lowering our FFB production growth (from 8% to 5%) and projected margins for both the plantation and downstream segments,” he said.

He maintained his “neutral” call on Genting Plantations, and revised down his SOP-based TP to RM9.41 from RM10.94.

Meanwhile, MIDF Research said in a note that Genting Plantations’ 1QFY21 results came in below its and consensus expectations as it accounted for about 14.3% and 19.6% of the respective full-year FY21 earnings forecasts on the back of below-than-expected earnings from the group’s downstream segment.

“We are revising our earnings forecasts for FY21 and FY22 by -12.9% and -7.7% to RM371.3 million and RM351.1 million respectively (from RM426.2.9 million for FY21 and RM380.2 million for FY22) given the worse-than-expected financial performance of its downstream segment,” it said.

Following the earnings downgrade, MIDF revised down its TP for Genting Plantations to RM11.30 from RM14.04.

It, however, maintained its “buy” call on the stock as it opined the recent upsurge in crude palm oil (CPO) prices to above RM3,000 per metric ton would help in supporting the group’s earnings growth momentum.

It also anticipated a recovery in the group’s FFB yield in FY21 due to an increase in the harvesting area, a better age profile where FFB yield would increase as trees come into maturity soon, and replanting activities.

On top of that, it also expects the group’s property segment to continue to record a better performance in anticipation of the resumption of economic activities resulting from Malaysia kick-starting its largest inoculation programme against Covid-19.

“All in, we expect these factors to support the group’s healthy earnings momentum in the coming quarters,” it said.

Nevertheless, it remained concerned about the performance of Genting Plantations’ downstream segment as the unfavourable palm oil-gas oil spread might dampen demand in the intermediate term.

At 10.10am, Genting Plantations was unchanged at RM8.30, valuing the group at RM7.45 billion.

Source: TheEdgeMarkets