Published on 06 Jan 2023.
RAM Ratings has reaffirmed Genting Plantations Berhad’s (the Group) AA2/Stable/P1 corporate credit ratings and the AA2(s)/Stable rating of the RM1.50 bil Sukuk Murabahah Programme (2015/2030) under the Group’s wholly owned funding conduit, Benih Restu Berhad. The AA2(s)/Stable rating for the Sukuk Murabahah is equated to Genting Plantation’s credit profile, reflecting the irrevocable and unconditional corporate guarantee from the Group.
The reaffirmation of the ratings is premised on our view that Genting Plantations’ business will remain resilient, underpinned by its commendable track record in plantation management. We expect the Group’s sturdy balance sheet and debt coverage to tide it over commodity price cyclicality, even with the near to medium term uncertainty over global recessionary risks.
Genting Plantations delivered a strong financial performance in FY Dec 2021, maintaining its growth momentum in the first nine months of this year. Revenue jumped 25.3% to RM3.13 bil in fiscal 2021, climbing another 16.5% y-o-y to RM2.40 bil in 9M fiscal 2022, mainly driven by lofty crude palm oil (CPO) prices. Consequently, operating profit before depreciation, interest and tax (OPBDIT) surged a respective 72.3% and 21.2% y-o-y to RM1.02 bil and RM834.50 mil in these periods, resulting in a wider OPBDIT margin of 32.6% in FY Dec 2021 and 34.8% in 9M FY Dec 2022 (FY Dec 2020: 23.7%). Notwithstanding a higher finance cost amid the rising interest rate environment, pre-tax profit clocked in at a respective RM670.43 mil and RM621.83 mil in fiscal 2021 and 9M fiscal 2022 (fiscal 2020: RM323.21 mil).
Stronger cash balances led to a much improved net gearing ratio and funds from operations (FFO) net debt coverage ratio of 0.15 times and 1.18 times, respectively, in 9M FY Dec 2022 (FY Dec 2020: 0.21 times and 0.47 times). Higher earnings facilitated a larger dividend distribution, although the dividend payout ratio was lower at 62% in FY Dec 2021 (FY Dec 2020: 74%) to ensure adequate headroom for the Group’s long-term growth.
In view of rising inflationary pressures and interest rates, the Group expects a higher cash outflow from investment and financing activities over the next two years which will lead to a lower cash position. Under RAM’s stressed CPO price assumptions, Genting Plantations’ net gearing is expected to increase to an average of 0.21 times in fiscal 2023 and 2024, while FFO net debt coverage will decline to 0.48 times (around fiscal 2020 levels), a level that we see still supportive of the current ratings.
The Group was not materially affected by the shortage of foreign labour, the minimum wage hike, and spike in fertiliser costs during the review period. Significantly higher CPO prices more than compensated for weaker fresh fruit bunch production in view of erratic weather conditions which affected harvesting and crop evacuation activities. The Group’s progressively maturing Indonesian estates are anticipated to support output growth going forward, barring weather anomalies. Replanting activity that reduces harvesting areas continues at the Group’s estates in Malaysia despite elevated CPO prices to improve yield over the long term and preserve a healthy tree age profile.
Like all planters, Genting Plantations is exposed to CPO price fluctuations and mounting scrutiny of environmental and social issues. The Group also contends with the still-revolving regulatory framework in Indonesia, where some 63% of its planted area is located. About half of the Group’s borrowings are denominated in US dollars, posing foreign exchange risk. However, as CPO is traded internationally in US dollars, a weaker ringgit and rupiah (or a stronger dollar) will bump up earnings in the local currency, moderating this risk.
Liew Kar Ling
(603) 3385 2586
Thong Mun Wai
(603) 3385 2522
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Ratings on Genting Plantations Berhad