Genting Plantation’s manufacturing facilities in Sabah reaffirmed views of the stable prospect for its operation divisions in
the near term says MIDF.
Notably, GenP has 2 manufacturing arms; a refinery and biodiesel plants, located in Lahad Datu, Sabah. The PO refinery is
equipped with an annual capacity of 600,000 Mt and established through a collaboration with Musim Mas Group, where GenP holds a significant 72% shareholding while MusimMas c. 28%. Its primary feedstock is CPO, mainly sourced from its own 6 mills, which in turn, receive their FFB from 14 block estates covering c. 47,554 ha in the Sabah region.
Note that the utilisation rate for the refinery in FY23 was less than 30%, which the house believes was comparable to its peers. The demand for RBD Palm Olein & Stearin, PFAD were softer due to major importing countries particularly China refiners opting for CPO instead of these PPO products. This shift was primarily attributed to the relatively small spread between the prices of RBDPO and RBDPS against CPO, ranging from USD120-140. As a result, it was not economical for outside refiners to import more PPO; instead, it was more cost-effective to refine it themselves. Broadly, the drop in demand was in line with a weakening trend in the sector’s PPO exports, which experienced a 4.0% decline in CY23.
Moving onwards, MIDF said the utilisation rate for this year is anticipated to increase to 35-40%, this is in line with the recovery global economic activity, which has translated in a past 2 months UR. Meanwhile, its Biodiesel demand remain flattish as the Malaysian market embedded B20 blended policy, but most areas in the nation currently still implementing 10% blending rate.
The house maintains its call and earnings at this juncture, as it deems an improvement in downstream arms will not yet bring noticeable impact to its earnings. MIDF believes GenP’s upstream division remains its core strength, and the share price potentially benefited from the CPO upward trajectory in 2QCY24 in light of anticipated Mild El-Nino that could reach RM4,400 level. MIDF maintains a NEUTRAL call with unchanged TP of RM6.10 derived from PER of 19.5x (nearly 5y average historical mean) pegging on FY24F EPS of 31.3sen
