M&A has a ‘hold’ call on Genting Plantation

PETALING JAYA: M&A Securities has initiate coverage on Genting Plantation Bhd with a 'hold' call and target price of RM11.74 on the back of its long-term production growth drivers.
It said this includes the group's estate young age profile, sizeable planted land-bank size and good yield potential as new additional plantation in Indonesia will come into maturity while more existing harvesting area will move into higher yielding age.
In a note yesterday, M&A said Genting Plantation's aggressive strategy in Indonesia has started to yield results and made its maiden contribution to the group's revenue in FY10.
Genting Plantation, a 53% owned-subsidiary of Genting Bhd and formerly known as Asiatic Development Bhd, at present, has a land bank of about 66,000 ha in Malaysia and 180,000 ha in Indonesia which was held through joint ventures and owns six oil mills in Malaysia and two in Indonesia, with a total milling capacity of 385 tonnes per hour.
While earnings of Genting Plantation are predominantly driven by plantation, it said property developments are seen as a potential candidate to cushions against downside risk from plantation business.
Moving forward, it said the group will continue to register good sales from its property projects in Johor, namely Genting Indahpura and Johor Premium Outlets.
In 1Q14, its property project in Johor achieved RM48.5 million in new property sales (4Q13: RM50 million). As of end March 2014, its unbilled progress billing stood at RM75 million.
"We forecast Genting Plantation earnings to increase by 54% in FY14 and 26% for FY15 respectively, driven by crude palm oil price assumptions of RM2,800 per metric tonne for 2014 and RM3,200 per metric tonne for 2015 and steady fresh fruit bunches yield performance and resilient OER capability."
As an upstream player, the research firm said its earnings will see a greater correlation with the CPO price movement. With that, in every RM100 a tonne change in CPO price would affect Genting Plantation's earnings by 3.7%-5% per annum, equating it as the main beneficiary once the CPO price rallies.