GENP: Core Earnings Exceed Expectations Driven by Cost Controls
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A recent research report by Public Investment Bank highlights a strong financial performance for the first half of the 2025 financial year (1HFY25), with core profit reaching RM203.7 million. This represents a significant 60% year-on-year increase and exceeded the bank’s full-year expectation, while aligning with consensus estimates.
Performance Review
Total revenue for the second quarter of FY25 (2QFY25) increased by 6.6% quarter-on-quarter and 1.3% year-on-year to RM767 million, driven by robust performance across most core segments, with the exception of downstream manufacturing. Plantation revenue saw a marginal gain, supported by improved Crude Palm Oil (CPO) prices and higher Fresh Fruit Bunch (FFB) production. The average CPO price rose slightly to RM3,802 per metric tonne in 2QFY25, contributing to a 6.7% increase in 1HFY25. FFB production also grew 3.1% year-on-year in 2QFY25, reaching 499,000 metric tonnes, largely due to crop recovery in Malaysia and stronger output from Indonesia.
A key factor underpinning the improved plantation earnings was a 12% year-on-year reduction in production costs to RM2,430 per metric tonne in 1HFY25. Property revenue surged four-fold to RM90.7 million, primarily due to land sales, further bolstering overall performance.
Operational Nuances and Challenges
Despite the overall positive core profit, the report noted that core earnings for the quarter were lower at RM72 million, down 10.4% year-on-year. This was primarily attributed to losses incurred in the biotechnology and downstream manufacturing segments. Downstream manufacturing sales experienced a 30.1% year-on-year decline, affected by reduced biodiesel and refinery sales volumes. Biotechnology continued to post a stable loss, reflecting ongoing R&D expenditure, while joint venture contributions halved due to lower footfalls at Malaysian outlets and start-up losses in Indonesian Premium Outlet.
Future Outlook
Management remains committed to its FFB production growth target of 3-5% for the full year, despite a marginal dip in the first six months. Fertiliser application in 1HFY25 stood at only 33% due to unfavourable weather conditions, though fertiliser costs are expected to see a low double-digit decline this year. Unbilled sales total RM188 million, with unsold stocks amounting to RM490 million. The company has also made provisions, impairing up to 80% of the book value for Indonesian land potentially subject to return to authorities. Capital expenditure for 1HFY25 totalled RM166 million, with half allocated to Indonesian estates and oil mills.
Investment Recommendation
Public Investment Bank has reiterated its Outperform call on the stock, maintaining an unchanged SOP-based target price of RM5.61. A first interim dividend per share (DPS) of 10 sen was also declared.
