PP 7767/09/2010(025354)

28 July 2010

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

V is it Note
28 July 2010
MARKET DATELINE

Genting Plantations Share Price

Fair Value
:
:
RM6.65
RM6.70
Indonesian Estates To Start “Fruiting” Soon Recom : Underperform
(Maintained)

Table 1 : Investment Statistics (GENP; Code: 2291) Bloomberg: GENP MK

Net Net
FYE Turnover profit EPS Growth PER C.EPS* P/CF P/NTA ROE Gearing GDY
Dec (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (%) (%)
2009a 755.6 235.7 31.1 (37.0) 22.8 20.5 2.1 9.6 cash 1.3
2010f 873.4 298.5 39.4 26.6 18.0 42.0 16.1 1.9 11.2 cash 1.5
2011f 976.0 350.9 46.3 17.5 15.3 45.0 13.7 1.7 12.0 cash 1.8
2012f 1,015.9 337.0 44.5 (4.0) 16.0 48.0 14.0 1.6 10.5 0.9 1.5
Main Market Listing / Non-Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

♦ Key highlights: (1) CPO price outlook; (2) No El Nino impact yet, slower Issued Capital (m shares) 756.8
production growth seen in 2HFY10; (3) Indonesian plantation Market Cap(RMm) 5,373.0
contributions to start coming through from FY11; (4) change in labour Daily Trading Vol (m shs) 1.0
permit regulations; (5) production costs to rise, not drop in FY10; and (6) 52wk Price Range (RM) 5.55-7.30
quiet on property development front, but potential coming from Chelsea Major Shareholders: (%)
Outlets and Kulai project. Genting 54.1

♦ Slower production growth in 2HFY10, but Indonesian

EPF 6.1
LTAT 5.4
contributions to start from FY11. GP’s FFB production growth has
recovered from the weakness seen in 1H09, to post an 11.7% yoy growth FYE Dec FY10 FY11 FY12
in YTD June 2010. Going forward however, management expects this yoy EPS chg (%) (2.0) 2.9 9.1
growth to slow in 2H10, given the recovery in FFB production which was Var to Cons (%) (6.2) 2.9 (7.4)
seen in 2H09. For the whole of 2H10, management expects FFB
PE Band Chart
production to be relatively flat yoy, which would bring FY10 FFB
production growth to approximately 6-7% yoy. Contributions from GP’s
PER = 18x
Indonesian plantations should already start contributing in FY11, albeit PER = 15x
very minimally, but we expect a larger impact from Indonesia to be felt PER = 12x

from FY12, contributing about 11% to total production.

♦ Potential on property development front in Kulai. We believe more
exciting prospects await once GP’s Chelsea Premium Outlets and the
surrounding area in Kulai start to be developed, given that the land is
within the Iskandar economic zone and is easily accessible as it is located
at the intersection between the Second Link to Singapore and the North- Relative Performance To FBM KLCI
South Expressway. In addition, we understand there will be a trumpet
interchange going into the area which is targeted to be completed by Oct
2011 (built by Ireka Bhd), which will make access even more convenient.
♦ Risks. Main risks include: (1) a convincing reversal in crude oil price Genting Plantation

trend resulting in reversal of CPO and other vegetable oils price trend; (2)
weather abnormalities resulting in an over or under supply of vegetable
FBM KLCI
oils; 4) revision in global biofuel mandates and trans-fat policies; and 5) a
quick global economic recovery, resulting in higher-than-expected
demand for vegetable oils.
♦ Forecasts. We tweaked our forecasts by -2.0% for FY10, +2.9% for
FY11 and +9.1% for FY12.
♦ Recommendation and valuations. Post-earnings revision, we raise our
fair value to RM6.70 (from RM6.50), based on an unchanged 14.5x CY11
target PER. We maintain our Underperform recommendation, as we
believe valuations remain stretched at current levels. Catalysts would Hoe Lee Leng
include a spike in CPO prices, given GP’s sensitivity to CPO prices, as well (603) 92802184
as foreseeable contributions from its integrated property project in Kulai. hoe.lee.leng@rhb.com.my

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 28 July 2010

♦ Key highlights from our meeting with Genting Plantations (GP) include: (1) CPO price outlook; (2) No El Nino
impact yet, slower production growth seen in 2HFY10; (3) Indonesian plantation contributions to start coming
through from FY11; (4) change in labour permit regulations; (5) production costs to rise, not drop in FY10; and
(6) quiet on property development front, with medium-term potential from Chelsea Outlets and Kulai property
development project.

♦ No change in price outlook and strategy. GP continues to provide an official CPO price target of
RM2,300/tonne for FY10 and maintains its mainly spot-selling strategy currently. This strategy will change only if
management feels that there is intense speculation in the market which would drive prices up. Management
expects prices to stay relatively stable at around RM2,300-2,500/tonne, with limited downside risk. We are
therefore maintaining our CPO price projections of RM2,500/tonne for FY10, RM2,700/tonne for FY11, and
RM2,500/tonne for FY12.

♦ Slower production growth seen in 2HFY10. GP’s FFB production growth has recovered from the weakness
seen in 1H09, to post an 11.7% yoy growth for YTD June 2010. Going forward however, management expects
this yoy growth to slow in 2H10, given the recovery in FFB production which was seen in 2H09. This can already
be seen in June’s production numbers, which grew by only 1.7% yoy, compared to 13.5% yoy in May and 25.6%
in Apr. For the whole of 2H10, management expects FFB production to be relatively flat yoy, which would bring
FY10 FFB production growth to approximately 6-7% yoy. Management noted also, that so far, it has not seen any
major impact of the El Nino phenomenon, but is not ruling it out, as the impact can normally be felt again 9
months and 24 months after the fact, i.e. by the year-end and in FY2012. For FY11, management expects to see
a slowdown in production for its Peninsular Malaysia (PM) estates, which comprise 30% of GP’s planted landbank,
due to tree stress, which would lead to overall FFB production growth of 3-4%. We raise our FFB production
target for FY10 to 7% (from 5%) to be in line with management targets, whilst maintaining our FY11 growth
projections at 3-4% p.a..

♦ Contributions from Indonesian plantations starting from FY11. Although contributions from GP’s
Indonesian plantations should already start contributing in FY11, albeit very minimally, we expect a larger impact
from Indonesia to be felt from FY12 onwards. In FY11, we estimate about 2,000-3,000ha of plantation land in
Indonesia should come into maturity, while in FY12, about 10,000-12,000ha should come into maturity. As such,
for FY12, management expects FFB production to grow by at least 10% yoy, coming from the newly mature
trees. We have therefore raised our forecasts for the Indonesian plantations to project total FFB growth for the
group at 14% yoy in FY12 (from 7% previously). We project the Indonesian plantations to contribute about 11%
to total production in FY12.

♦ Change in labour permit regulations for the better. There has been some good news on the labour front
lately as we understand that last month, labour permits for foreign workers in Malaysia are now able to be
applied for 5+5 years (from 3+1+1 years previously). While this means that a plantation company still needs to
renew the permit after five years, the application for renewal only needs to take place once during the initial five
years, as opposed to twice previously. In addition the lengthened period of an additional 5 years is positive for
plantation companies, who may be finding it hard to obtain approvals for new “headcount”. We understand the
labour problem is more prevalent in Sabah than in Peninsular Malaysia at the moment. While GP is not facing a
severe shortage at the moment, management warned that this could become a problem should the governments
of Malaysia and Indonesia not arrive at an amicable solution soon.

♦ Production costs to rise, not drop in FY10. As opposed to management’s previous guidance that production
costs in FY10 would be lower yoy, we understand that it may actually turn out to be higher instead, due mainly to
higher transportation costs, which make up about 15-20% of total costs. Together, with the increase in fertiliser
application to 9.7kg/palm (from 7kg/palm previously), management anticipates its overall production costs to be
about 5-10% higher yoy in FY10, at about RM1,050/tonne. As such, we have raised our production cost
projections to reflect a 5% yoy increase (from a 3% decline previously) for FY10, while maintaining our
expectations that costs will rise by a further 2% in FY11. In Indonesia, management is hoping that once more of
its estates mature, production costs (for FFB) there will be about 15-20% lower, due mainly to lower labour costs.
However, this will only be achievable if the Indonesian estates achieve the targeted FFB yields set by GP. In
general, in the first year of maturity, FFB yields should be 6-8t/ha, followed by 10-12t/ha in the second year and
15-20t/ha by the third year (see Chart 1).

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 28 July 2010

Chart 1 : FFB Yield vs Tree Age

Prim e Age
30
26 26 26 26 26 26
25 25
24 24
25 23 23
22
21
20
19 19
20
FFB Yield (t/ha)

18 18
17
15
15
11
10
6
5
0 0
0
1

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25
Tree Age

Source: RHBRI

♦ Quiet on the property development front… As for the property development division, things continue to be
quiet in YTDFY10, with no new launches as yet. GP does plan to launch some residential tranches in Batu Pahat
and Kulai towards the end of the year, but notes that these are small launches. GP’s sales target for the property
division in FY10 remains at about RM70-80m, which is in line with our expectations. We believe more exciting
prospects await once GP’s Chelsea Premium Outlets and the surrounding area in Kulai start to be developed,
given that the land is within the Iskandar economic zone and is easily accessible as it is located at the
intersection between the Second Link to Singapore and the North-South Expressway. In addition, we understand
there will be a trumpet interchange going into the area which is targeted to be completed by Oct 2011 (built by
Ireka Bhd), which will make access even more convenient.

♦ … but medium-term potential from Chelsea Outlets and Kulai property development project. We
believe the Chelsea Outlets (which is to be developed by late-2011 at a cost of RM158m) will be a crowd-puller
which will ensure decent traffic flow from both Malaysia and Singapore. Genting chairman, Tan Sri Lim Kok Thay
has been quoted as saying that all 60 outlets in the first phase of the mall have already been taken up, while we
understand the Genting group intends to introduce package bus tours that bring visitors between their casinos in
Malaysia and Singapore, with a stop at Chelsea. Besides this, we understand GP has sold 150 acres of land next
to the Chelsea Outlets to the state government, which intends to make it a MSC (Multimedia SuperCorridoor)
area. Besides the Chelsea Outlets benefitting from the tax incentives given to companies which operate in the
Iskandar and MSC area, GP would also be able to benefit from the higher traffic flow from the MSC hub, as it will
help to increase popularity of its property development projects there. In Kulai, GP has about 2,855ha of land, of
which only about 101ha has been converted to property development land. We understand GP has earmarked
about 60% of the land to be developed into a township, comprising residential, commercial and industrial areas.
We note that Tan Sri Lim Kok Thay has also been quoted in the press as saying that the Genting group plans to
set up a hub in Iskandar, building a whole resort experience around the anchor, Chelsea Outlets, which will
feature hotels and a theme park in the later phase. We believe GP’s role in the development of the hotels and
theme park would likely be one of a property owner and not operator. While we have not included any
contributions from Chelsea in our forecasts as yet, pending further details, we do not expect contributions to be
very significant, especially in the first year of operations, which would only be in FY12.

Risks

♦ Main risks include: (1) a convincing reversal in crude oil price trend resulting in reversal of CPO and other
vegetable oils price trend; (2) weather abnormalities resulting in an over or under supply of vegetable oils; 4)
revision in global biofuel mandates and trans-fat policies; and 5) a slow global economic recovery, resulting in
weaker-than-expected demand for vegetable oils.

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 28 July 2010

Forecasts

♦ Tweaked our forecasts. We tweaked our forecasts by -2.0% for FY10, +2.9% for FY11 and +9.1% for FY12,
after: (1) raising our FFB production target for FY10 to 7% (from 5%) to be in line with management targets,
whilst maintaining our FY11 growth projections at 3-4% p.a; (2) raising our Indonesian plantation forecasts for
FY12; and (3) raising our production cost projections to reflect a 5% yoy increase (from a 3% decline previously)
for FY10, while maintaining our expectations that costs will rise by a further 2% in FY11.

Recommendation and valuations

♦ Maintain Underperform with higher target price. Post-earnings revision, we raise our fair value to RM6.70
(from RM6.50), based on an unchanged 14.5x CY11 target PER. We maintain our Underperform
recommendation, as we believe valuations remain stretched at current levels. Catalysts would include a spike in
CPO prices, given GP’s sensitivity to CPO prices, as well as foreseeable contributions from its integrated property
project in Kulai. Note that every RM100 change in CPO price would affect GP’s earnings by 5-7%.

Table 3. Earnings Forecasts Table 4. Forecast Assumptions

FYE Dec (RMm) FY09a FY10F FY11F FY12F FYE Dec FY10F FY11F FY12F

Turnover 755.6 873.4 976.0 1015.9 FFB Processed (‘000 t) 1,238 1,272 1,307
Turnover growth (%) (27.1) 15.6 11.7 4.1 CPO Production (‘000 t) 254 261 268
PK Production (‘000 t) 62 64 65
Cost of Sales (375.1) (415.5) (431.5) (465.4) Average CPO price (RM/t) 2,500 2,700 2,500
Gross Profit 380.5 458.0 544.6 550.5 Average PK price (RM/t) 1,300 1,500 1,300

EBITDA 312.5 421.6 505.9 514.5

EBITDA margin (%) 41.4 48.3 51.8 50.7

Depreciation (26.5) (35.6) (41.7) (47.7)

Net Interest 10.4 4.7 (0.8) (4.6)
Associates 5.4 6.0 5.0 5.0
EI 0.0 0.0 0.0 0.0

Pretax Profit 301.9 396.7 468.3 467.2

Tax (64.0) (95.2) (112.4) (116.8)
PAT 238.0 301.5 355.9 350.4
Minorities (2.3) (2.9) (5.1) (13.4)
Net Profit 235.7 298.5 350.9 337.0
Source: Company data, RHBRI estimates

Chart 2: GenP Technical View Point

♦ Since the share price of GenP peaked at RM7.30
high in Mar 2010, it headed lower on sustained
profit-taking pressure.

♦ It suffered another blow when the 10-day SMA

crossed below the 40-day SMA in early May to
imply a negative medium-term outlook.

♦ This in turn sparked a steeper correction. It

slumped to a low of RM5.98 before coming back
with a sudden bullish reversal in end-May. By late
Jun, it recovered to RM7.09 high, before
surrendering to sellers again.

♦ But from the recent low of RM6.40, it re-launched a

sharp rebound by moving up almost vertically to a
multi-month high of RM7.15 yesterday.

♦ Though it accumulated another negative candle in

the past two trading days to signal possible
weakness ahead, its uptrend will stay firm so long
as the 10-day SMA near RM7.07 can hold.

♦ This means the current technical rebound will be

reversed only if it falls below the 10-day SMA.

♦ On the upside, the next immediate target is at

Mar’s high of RM7.30, followed by RM7.55.

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IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
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contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
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This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of
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The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based upon
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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on higher
risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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