PETALING JAYA: Analysts are generally keeping a positive mood that is tinted with caution towards Genting Plantations Bhd
, weighing between the group possibly having a strong final quarter of the year (4Q24), to factors such as a challenging downstream business environment.
Maybank Investment Bank (Maybank IB) Research said the plantation group’s core profit after tax and minority interest (Patmi) had missed the research house’s and consensus estimates due to a delay in Indonesia’s crop recovery, impairments, and a net inventory build-up.
Despite those factors, it believes Genting Plantations is poised to deliver its strongest quarterly earnings in 4Q24 as crops are set to peak amidst present high average selling price for crude palm oil (CPO).
“Genting Plantations expects its group fresh fruit bunch (FFB) output to peak in 4Q24 as Indonesia’s crop is picking up.
“Still, the group now anticipates FFB output for the whole of 2024 to be flattish-to-marginally lower year-on-year (y-o-y) following low output for the nine months ended September (9M24),” reported Maybank IB Research.
While cutting its FFB output assumptions, the research house is upgrading its 2024, 2025 and 2026 Patmi forecasts for the group by 5%, 3% and 3% respectively, following an upward revision to average selling price (ASP) for CPO.
Following the earnings upgrades, Maybank IB Research is keeping its “buy” call on Genting Plantations, with a higher target price of RM6.96 to FY25.
At the same time, the research house is anticipating FFB production for the group to decrease y-o-y due to the adverse effects of weather conditions and biological tree rest.
However, it pointed out that the expansion and progression of existing mature areas into higher-yielding brackets in Indonesia may help mitigate some of this decline.
“Additionally, the ongoing replanting activities in Malaysia could have a moderating effect on the group’s overall production growth.
Notably, Maybank IB Research said production in Indonesia remained strong for Genting Plantations during 3Q24, thanks to the favourable age profile and expanded harvesting areas.
On the other hand, it observed that production in Malaysia remained subdued due to large-scale replanting activities, covering approximately 3,500ha and a wet weather spell that made the FFB evacuation process more challenging.
“Concurrently, the downstream outlook remains challenging, given the intense competition from Indonesian counterparts following recent changes in Indonesian export levies and the overcapacity of refineries in Indonesia,” it said.
Despite the reservations, MIDF Research is holding on to its “buy” call on the counter with an unchanged target price of RM6.10, derived from a price-earnings ratio of 16.9 times.
Similarly, CGS International (CGSI) Research is also expecting downstream manufacturing for Genting Plantations to remain rigorous in 4Q24, especially since the group’s refinery operations may still incur losses, although it added that this would be partially offset by profitable performance from its biodiesel operations.
“We believe 4Q24 net profit for the group will improve quarter-on-quarter, on the back of higher upstream earnings with improved average selling prices for CPO ASP, higher sales volume and lower cost of production,” said the securities outfit.On top of that, it tipped property segment earnings for Genting Plantations to improve with higher contributions from the latter’s Genting Premium Outlet and Johor Premium Outlet, although these could be partially offset by the challenging downstream operations.
CGSI Research has a “hold” call on the stock, with a target price of RM5.90, highlighting downside risks that include strong pricing competition among Indonesian players, changes in Indonesia’s palm oil policy, and slower-than-expected property development in Malaysia.
