Genting Plantations upgraded on strong upstream ops, improvements in Sabah

KUCHING (April 1): Analysts revise their ratings call on Genting Plantations Bhd (Genting Plantations) on the back of strong upstream operations, contributing about 85 to 90 per cent of total group profit in the financial years 2024 (FY24) to FY25.

The plantations firm has been upgraded to a buy call by analysts with MBSB Investment Bank Bhd (MBSB Research) following a post-management meeting reassessment, with its target price raised to RM5.80 from RM5.14 previously, supported by stronger crude palm oil (CPO) price expectations and resilient upstream performance.

The revised valuation is based on a forecast FY2026 earnings per share (EPS) of 37.9 sen, pegged to a price-to-earnings ratio (PER) of 13 times, representing a discount to its near five-year historical average to account for operational risks.

Analysts noted that upstream operations remain the key earnings pillar, contributing about 85 to 90 per cent of total group profit in FY24 and FY25.

“With CPO prices expected to stay elevated, Genting Plantations is likely to sustain stable profit margins of around 10 to 11 per cent over the next two years.

“Any upside in prices, particularly from higher biodiesel blending mandates such as Indonesia’s potential move towards B50, could provide trading opportunities,” the report said.

The group’s upstream outlook remains stable, underpinned by modest fresh fruit bunch (FFB) growth of three to five per cent, contingent on normalised weather conditions.

Improvements in Sabah, including reduced flooding and faster monsoon dissipation, are expected to support crop quality and maintain oil extraction rates (OER) within historical levels of 21 to 22 per cent.

Growth is further supported by Indonesiaís improving plantation age profile and Malaysiaís maturing replanted areas.

According to the analyst, with about 60 per cent of its trees in prime age, Genting Plantations is seen as well-positioned to sustain output barring adverse weather disruptions.

However, its downstream operations continue to face headwinds, with biodiesel and refinery utilisation rates remaining subdued at below 20 per cent and around 40 per cent, respectively.

This reflects weak domestic demand and limited export traction amid softer global demand, particularly from China due to increased soybean substitution.

Seasonal demand uplift is expected to remain modest and largely tied to festive-driven logistics activity.

As such, downstream margin recovery will depend on a sustained pickup in domestic consumption and clearer policy direction on biodiesel blending mandates.

The report also highlighted a divergence in biodiesel policy momentum between Malaysia and Indonesia.

While Malaysiaís implementation remains constrained, with B20 rollout limited to selected regions, Indonesia is progressing more decisively towards higher blending mandates such as B45 and potentially B50, supported by favourable palm oil gasoil (POGO) dynamics.

“This divergence suggests Malaysia may lag in demand uplift, while Indonesia continues to drive regional biodiesel-led consumption growth,” it noted.

On the cost front, analysts cautioned that fertiliser prices pose a rising risk, particularly into the second half of 2026.

Currently, while requirements for the first half are largely secured, the upcoming tender cycle introduces timing risks if urea prices remain elevated.

Fertiliser costs, which account for roughly 12 per cent of total production costs, could trend higher but are expected to remain manageable relative to previous peaks seen during the Russia-Ukraine conflict.