GENP: Earnings Meet Expectations Despite Downstream Headwinds

A recent investment bank research report indicates that core earnings for the first half of 2025 grew significantly and met market expectations, driven by robust performance in its upstream plantation and property segments. Despite these gains, the second quarter saw sequential weakness, primarily due to persistent challenges in the downstream operations.

Performance Review

For the first six months of 2025 (6M25), core net profit climbed 30% year-on-year to RM165 million, aligning with both the investment bank’s and consensus forecasts. Revenue for the period increased by 9.1% year-on-year to RM1.5 billion. This growth was largely attributed to a stronger contribution from the upstream plantation and property divisions. Average Selling Prices (ASPs) for Crude Palm Oil (CPO) and Palm Kernel (PK) saw increases of 7% and 56% year-on-year, reaching RM3,969/MT and RM3,361/MT respectively. Fresh Fruit Bunch (FFB) production remained relatively flat at 934,000 metric tonnes, as higher output from Indonesian estates effectively offset lower production in Malaysia during the first quarter due to adverse weather conditions.

Challenges and Future Outlook

Despite the strong first-half performance, the second quarter of 2025 (2Q25) experienced a sequential decline in core net profit, which fell 75% quarter-on-quarter to RM33 million. This downturn was a result of weaker contributions across the upstream plantation, downstream, and AgTech segments, coupled with lower joint venture and associate earnings. Management attributed the softer upstream performance to reduced FFB output earlier in 1Q25 due to poor weather but maintains a positive outlook for FFB growth, projecting a 3-5% increase for the full year 2025, buoyed by expected higher contributions from Indonesian estates.

The downstream segment continues to face significant headwinds, grappling with persistent margin pressures stemming from intense competition within Indonesia’s refinery sector and limited opportunities for biodiesel exports. Key risks identified for the future include fluctuations in CPO prices, variations in production and demand, escalating operational costs, and broader macroeconomic uncertainties.

Investment Stance

The investment bank has maintained its HOLD rating on the company, with a 12-month target price of RM5.27. This valuation is based on a 15x price-to-earnings (PE) multiple for estimated 2026 earnings per share (EPS), which is in line with a 1-standard deviation below its 5-year historical mean.