GENP: Earnings Within Estimates Drive ‘Buy’ Upgrade as Oil Palm Sector Outperforms

A leading investment bank has upgraded its recommendation for a key plantation counter to BUY, revising its target price to RM4.38 from RM3.98. The upgrade follows the company’s 2QFY25 results, which aligned with market expectations, driven by a stable earnings outlook and attractive valuations.

The firm highlighted the current valuation, which remains appealing at a high single-digit price-to-earnings ratio, compared to peers trading in the low teens. This, coupled with an expanding Fresh Fruit Bunch (FFB) production estimated at around 769,000 hectares and a competitive cost of production at approximately RM2,100/Mt, underpins the positive outlook.

Performance Review

For the first half of FY25 (1HFY25), the company reported a core PATAMI (Profit After Tax and Minority Interest) of RM86.2 million, marking a robust 30.8% year-on-year increase. This performance was within both the investment bank’s and consensus estimates, representing approximately 47% of full-year projections. The second quarter alone saw core PATAMI reach RM44.5 million, an 18.0% year-on-year growth.

The oil palm segment was a significant contributor to profitability, with its topline surging by 21.1% year-on-year to RM385.2 million and its bottom-line climbing by 35.3% year-on-year to RM79.8 million. This robust growth was attributed to decent FFB and Crude Palm Oil (CPO) sales volumes, which increased by 0.5% and 15.2% year-on-year, respectively. Profit margins in the segment were maintained at 20.7%, boosted by an elevated average CPO price of approximately RM4,102/Mt and a softer cost of production.

Operational Highlights and Challenges

Operationally, FFB production remained stable, exceeding 145,000 Mt, supported by productive estate activity and normalized weather conditions. CPO production also saw an uptick of 11.1% year-on-year, thanks to higher standards of crop quality. The Oil Extraction Rate (OER) improved to 19.96% from 19.38% in 2Q24, ensuring satisfactory estate and mill margins.

Despite strong performance in the oil palm division, the timber products segment faced challenges, recording a pre-tax loss in 2QFY25 and a significant year-on-year decline in revenue for 1HFY25, indicating an area requiring attention.

Future Outlook

The investment bank is retaining its earnings estimate, noting alignment with its baseline projection. The company’s earnings outlook is stable, supported by continued FFB production expansion and managed production costs. Furthermore, its position as a purely local company provides insulation from potential regulatory risks in Indonesia, adding to its stability. The valuation is based on FY26F EPS of 39.8 sen, pegged to an 11x PER, which is one standard deviation above its 5-year historical average, with potential for further trading opportunities linked to CPO price movements.