AmWatch - Genting Plantations : Young trees to drive growth BUY, 23 Jun 2015

STOCK FOCUS OF THE DAY

Genting Plantations : Young trees to drive growth            BUY

Maintain BUY on Genting Plantations (GenP) with an unchanged fair value of RM11.60/share, which is based on an FY16F fully diluted PE of 25x. In the past seven years, GenP’s PE ranged from a low of 5.2x to a high of 39.8x. Average PE was 20x. We have tweaked GenP’s FY15F and FY16F EPS downwards for housekeeping reasons.

GenP’s PE valuation has been re-rated due to the expansion in its earnings and landbank. We estimate that the group’s net earnings and planted landbank have almost doubled since 10 years ago. Also compared with IJM Plantations and TSH Resources, GenP’s PE multiple is the cheapest. GenP is flushed with cash after the recent issuance of its RM1bil 10-year Sukuk papers. After the conversion of its 127.6mil warrants by FY19F, the group would have another RM988.9mil in its cash reserves. The warrant has an exercise price of RM7.75/share.

GenP is positioned to benefit from a recovery in CPO prices due to its young oil palm trees in Indonesia. As the full impact of GenP’s downstream activities would only be felt in FY17F, the group would still be a relatively pure plantation player. GenP’s planted landbank of 62,000ha (nucleus) in Indonesia is now larger than Malaysia. Indonesia is expected to account for about 25% of GenP’s FFB production. FFB production in Indonesia is forecast to climb by 46% in FY15F.

The increase in GenP’s FY15F FFB output in Indonesia is anticipated to be driven by a rise of 10% or 8,000ha in mature areas. Average age of GenP’s oil palm trees in Indonesia is four years old. About 50% of the trees in Indonesia are between zero and three years old while another 47% are aged from four to seven years old. Overall, GenP’s FFB production is forecast to grow by 9% in FY15F and 12% in FY16F. The group’s FFB output in Malaysia is expected to be flat.

Others :

Banking Sector : Summary of international agencies’ ratings        NEUTRAL

Economic Update : Mean monthly household income stood at RM6,141 in 2014

QUICK TAKE

Ta Ann Holdings : Enters into new JVs with Pelita for NCR land development       HOLD

NEWS HIGHLIGHTS

AirAsia : Rebuts claims it condones “accounting gimmicks”

Property Development : 1MDB invites proposals for Bandar Malaysia

UEM Sunrise : Expects strong take-up for new mixed-used township project near Putrajaya

DISCLAIMER:

The information and opinions in this report were prepared by AmResearch Sdn Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmResearch Sdn Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmInvestment Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice.