Genting Plantations to get earnings boost from RM334m Melaka land sale — Kenanga

• In a separate note, Kenanga Research was favourable of Scientex Bhd’s acquisition of the Melaka land.

KUALA LUMPUR (Jan 27): Kenanga Research said Genting Plantations Bhd's (KL:GENP) proposed disposal of its Melaka land is accretive in nature and outweighs the loss of crude palm oil (CPO) income from the estate.

The research house noted that while the group would lose RM1 million to RM2 million annually in palm oil income from the estate, the RM334 million cash proceeds from the sale will boost its bottom line.

The proceeds, Kenanga said, would add RM10 million to RM15 million per year to Genting Plantations’ net profit "from either deposit interest income or debt interest savings if used to repay some of the group’s borrowings".

"The disposal also allows the group to exit from a small stand-alone operation at a decent enough price which is earnings accretive to GENP, " Kenanga added.

"GENP also ended 3QFY24 with net debt of RM1.341b (26% net gearing) so the proceeds will be welcomed."

The research house maintained its FY2024 forecast for the company, while nudging up its FY2025 core net profit forecast by 2%.

The sale is seen as strategically beneficial for the company, especially given that a portion of the estate is being replanted, underscoring the opportunistic nature of the disposal.

Kenanga Research kept its “outperform” rating on Genting Plantations and raised its target price to RM6.30 from RM6.00, citing expectations of strong upstream margins and the upcoming opening of the Jakarta Premium Outlet, which is likely to boost earnings in the near term.

Meanwhile, in a separate note, Kenanga Research was favourable of Scientex Bhd’s (KL:SCIENTX) acquisition of the Melaka land.

Purchase of the land, located in an area where residential land prices range from RM12 to RM18 per square foot, is seen as a fair deal.

The research house estimated a net present value (NPV) of RM342 million in profit for the land, based on an assumption that land costs make up 15% of the project’s gross development value (GDV).

Despite the increase in financial leverage, the research house believes that the level of gearing remains manageable. The acquisition will be funded through a mix of internal funds and bank borrowings.

Kenanga Research has maintained a “market perform” rating on Scientex, while raising its target price to RM4.24 from RM4.15.

The research house remained upbeat on Scientex’s competitive position, particularly in the global plastic packaging industry, where it benefits from a low-cost structure compared to international competitors. 

Genting Plantations’ shares gained two sen or 0.3% to RM5.82 at noon break, valuing the group at RM5.22 billion, while Scientex's shares were unchanged at RM4.02, translating into a market capitalisation of RM6.26 billion.

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