Genting Plantations targets more planting for land in Indonesia
June 25, 2010, Friday
KUCHING: A key player in the plantations industry, Genting Plantations Bhd (Genting Plantations) is targeting to cultivate 10,000 hectares annually in Indonesia.
ROBUST GROWTH: The research report highlights that the sheer amount of new planting implies a significant growth of over 10 per cent in FFB productions beginning 2014, soon after its trees mature, without the trees having to reach prime age.
Maybank Investment Bank Bhd (Maybank Investment) in its research report yesterday highlighted that the group’s maiden planting in Indonesia began back in 2009, with about 50,000 hectares of unplanted land in the country against a total current planted area of about 80,000 hectares.
The research report highlighted that the sheer amount of new planting implied a significant growth of over 10 per cent in fresh fruit bunch (FFB) productions beginning 2014, soon after its trees mature, without the trees having to reach prime age.
However, the research house forewarned that the Indonesia-centric growth also meant that the group would be the most adversely affected if a blanket ban on clearing was imposed without warning.
After accounting for the capital expenditure (capex) required for new planting, Maybank Investment estimated that Genting Plantations could still comfortably generate over RM100 million of enterprise free cash flow (FCF) annually with crude palm oil (CPO) forecasted at RM2,400 per tonne.
Assuming a 20 per cent payout, the research firm projected Genting Plantation’s net cash to double in less than five years. Therefore, the management would have ample leeway to explore acquisition opportunities or to raise dividends in the near future.
In terms of price earnings ratio, Genting Plantations’ stock was trading near its peak valuation on par with the sector’s leaders. However, with significant earnings accretion from the new planting to only kick in after 2013, the research house believed that the stock’s incremental upside was limited for the time being.
On that note, Maybank Investment concluded by pegging Genting Plantations at RM6.70 per share.
