UOBKH Research said the group is poised to benefit from better selling prices and lower production costs due to reduced fertiliser costs.
KUALA LUMPUR: Genting Plantations Bhd
’s (GenP) production growth is expected to be driven primarily by its Indonesian estates, going forward.
Its Indonesian estates have a younger age profile compared with its Malaysian estates, which are expected to see marginal growth of 1.1% year-on-year (y-oy).
Indonesia contributes up to 60% of the group’s crude palm oil production at present.
According to UOB Kay Hian Research (UOBKH Research), the group is poised to benefit from better selling prices and lower production costs due to reduced fertiliser costs.
“The group’s second quarter profits are likely to improve y-o-y,” the research house said.
It also noted the group’s fresh fruit bunch production growth forecast of 5% y-o-y this year, which is slightly higher than initial expectations of a 4% y-o-y growth.
The research house anticipated the plantation group’s downstream segment to remain challenging due to strong competition in the market and increased production costs.
Export demand for the biodiesel sub-segment also still remains challenging, UOBKH Research noted.
Earnings before interest, taxes, depreciation and amortisation for the downstream segment decreased by 55.1% from the previous quarter and 91.7% y-o-y in the first quarter of its financial year 2024.
The research house maintained its “buy” call on the counter with a target price of RM6.65.
The valuation is pegged at 17 times the 2024 forward price-earnings ratio (PER), which is valued at minus one standard deviation to the sector’s five-year mean, UOBKH Research said.
It noted that GenP’s valuation is also cheaper compared with other big-cap plantation players, which are trading at 20 to 25 times PER.
While the group has no fixed dividend policy, historical payouts have shown an average payout of 80% of its net profit in the last five years.
Based on a baseline expectation of a 50% payout ratio, UOBKH Research anticipates dividends of 19.6 sen, 14.5 sen, and 13.9 sen from 2024 to 2026.
This translates to yields of 3.5%, 2.6%, and 2.5%, respectively, the research house said.
