Here Is Why We Are Not Impressed With Genting Plantations Bhd

Genting Plantations Bhd is a leading palm oil plantation and milling corporation listed in Malaysia. As of 27 November 2019, Genting Plantations Bhd has a total of RM 8.62 billion in market capitalisation. Here, I’ll list down 11 key things that you need to know about Genting Plantations Bhd before you invest.

  • Matured Plantation Area
    Genting Plantations Bhd has increased its matured plantation area by a CAGR of 9.4% for the past 10 years, rising from 55,608 hectares in 2009 to 124,374 hectares in 2018. This growth arises predominantly from its newly planted area in Kalimantan, Indonesia.

Source: Genting Plantations Bhd’s Annual Reports

  • Palm Oil Milling Capacity
    Since 2011, Genting Plantations Bhd has added another 5 palm oil mills into its portfolio. Hence, its palm oil milling capacity has increased from 6 mills with 265 MT an hour in 2011 to 11 mills with 550 MT an hour in 2018. Presently, 7 of these mills are located in Malaysia and the other 4 are based in Singapore.

Source: Genting Plantations Bhd’s Annual Reports

  • Fresh Fruit Bunches (FFB) Production
    Genting Plantations Bhd has increased its FFB production by a CAGR of 6.7% for the last 10 years, increasing from 1.16 billion MT in 2009 to as much 2.08 billion MT in 2018. The increase was attributable to ongoing growth in planted area and maturity of its plantations in Indonesia over the 10-year period.

Source: Genting Plantations Bhd’s Annual Reports

  • Financial Results:
    Over the last 10 years, Genting Plantations Bhd has achieved a CAGR of 10.8% in group revenues, increasing from RM 755.6 million in 2009 to a total of RM 1.90 billion in 2018. This is primarily attributable to ongoing rise in its FFB, Crude Palm Oil (CPO), and Palm Kernel (PK) production in the 10-year period. In terms of profitability, the company has delivered erratic patterns of shareholders’ earnings due to uneven margins which was caused by volatile palm prices during the period. Overall, it has, on average, generated RM 300 million in earnings per annum and made as much as 8.42% in Return on Equity (ROE) per annum in the 10 years.

Source: Genting Plantations Bhd’s Annual Reports

  • Cash Flow Management
    From 2009 to 2018, Genting Plantations Bhd has brought in a total of:

    – RM 3.15 billion in positive cash flows from operations.
    – RM 306.0 million in interest income.
    – RM 128.5 million in investment income.
    – RM 49.8 million in dividends from its associate companies.
    – RM 594.5 million in net equities.
    – RM 2.18 billion in net long-term borrowings.

    Out of which, Genting Plantations Bhd has spent as much as:

    – RM 2.06 billion in net capital expenditures (CAPEX).
    – RM 1.04 billion in plantation development expenditures.
    – RM 247.9 million in land held for development.
    – RM 173.2 million in leasehold land use rights.
    – RM 1.12 billion in dividend payments to reward its shareholders.

    Since 2011, Genting Plantations Bhd has maintained about RM 1 billion in cash reserves. Thus, it is evident that the company has been efficient in generating operating cash flows and had chosen to use a big portion of it to expand its portfolio of plantation assets, which had successfully increased its palm production over the last 10 years.

  • Latest 12-Month Financial Results
    Over the last 12 months, Genting Plantations Bhd made RM 2.11 billion in group revenues. Out of which, it earned as much as RM 100.2 million in shareholders’ earnings or 12.42 sen in earnings per share (EPS). The profit figures are relatively low as compared to its past figures because palm prices had been low in the 12-month period.

Group Revenue(RM ‘000)Shareholders’ Earnings
(RM ‘000)
Earnings per Share (EPS) (Sen)
Q3 2018488,83823,5132.93
Q4 2018482,33814,2691.78
Q1 2019621,69641,6845.16
Q2 2019525,74420,7442.55
Total 2,118,616100,21012.42

Source: Genting Plantations Bhd’s Quarterly Reports 

  • Balance Sheet Strength
    As of 30 June 2019, Genting Plantations Bhd has RM 2.55 billion in non- current liabilities and RM 4.88 billion in shareholders’ equity. As such, it has a gearing ratio of 52.5%. In addition, Genting Plantations Bhd has a total of RM 2.81 billion in current assets and RM 1.02 billion in current liabilities. Thus, it has a current ratio of 2.75.
  • Future Growth Prospects:
    As of 31 December 2018, Genting Plantations Bhd has 34,751 hectares of immature planted area where these plantations would begin to bear their first fruits in the third and fourth year and thus, contributing to an ongoing growth in production in FFB, CPO, and PK in years to come. For the short term, the board revealed that its overall performances for its plantation segment would be negatively impacted if prices of palm oil remain low in 2H 2019. As I write, CPO prices have spiked up to RM 2,500+ levels as of November 2019.

Source: Business Insider

  • P/E Ratio
    As of 27 November 2019, Genting Plantations Bhd’s stock price is now trading RM 10.60 a share. Thus, it has a current P/E Ratio of 85.35 if we calculate it with its latest 12-month EPS of 12.42 sen. It is the highest in the 10-year period.
  • P/B Ratio
    In Q2 2019, Genting Plantations Bhd has RM 5.40 in net assets a share. Hence, it has a current P/B Ratio of 1.96, just below its 10-year average of 2.01.
  • Dividend Yields
    In 2018, Genting Plantations Bhd has paid out 13.0 sen in dividends per share (DPS). Its DPS payouts had been erratic for the last 10 years. Let’s say Genting Plantations Bhd is able to maintain its DPS at 13.0 sen per annum, the company’s dividend yield is 1.23% per annum.

Source: Genting Plantations Bhd’s Annual Reports

VIA’s Verdict 
Genting Plantations Bhd has delivered erratic earnings and dividend payments despite consistent growth in FFB, CPO, and PK productions for the last 10 years. 

This has caused an erratic P/E Ratio pattern during the period. Its dividend yield is below 3% per year, which is below the local FD interest rates in Malaysia. Looking at all its matrics now, Genting Plantations hardly looks interesting from all angles.

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