Published on 02 Nov 2023.
RAM Ratings has affirmed 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 issue rating reflects Genting Plantation’s credit profile, given the irrevocable and unconditional corporate guarantee on the sukuk from the Group.
The affirmation of the ratings is premised on our view that Genting Plantations’ business will remain resilient, underpinned by a solid track record in plantation management. We continue to expect the Group’s sturdy balance sheet and debt coverage to tide it over commodity price cyclicality.
Against the backdrop of higher crude palm oil (CPO) prices, the Group delivered a rather muted financial performance in FY Dec 2022 as the improved showing of the plantations segment was mostly moderated by weaker downstream operations. Revenue grew by a marginal 1.9% y-o-y to RM3.19 bil while operating profit before depreciation, interest and tax (OPBDIT) stayed largely unchanged at RM1.03 bil. In 1H FY Dec 2023, revenue and OPBDIT declined a respective 11.8% and 51.7% y-o-y on lower palm product prices and continued stiff competition for refined palm products owing to Indonesia’s export tax structure. Consequently, Genting Plantations’ OPBDIT margin was a narrower 23.3% compared to 32.2% in fiscal 2022. Pre-tax profit clocked in at a respective RM688.9 mil and RM159.9 mil in fiscal 2022 and 1H fiscal 2023 (fiscal 2021: RM670.4 mil).
As a result of lower operating cash flows amid weaker palm product prices, Genting Plantations’ net gearing ratio and annualised funds from operations (FFO) net debt coverage weakened to 0.19 times and 0.44 times, respectively, in 1H FY Dec 2023 (FY Dec 2021: 0.17 times and 1.03 times). These metrics, despite the deterioration, remain strong and supportive of the current ratings. Our sensitised projections indicate that net gearing will be around 0.21 times in fiscal 2023 and 2024 while FFO net debt coverage will stay robust between 0.55 times and 0.66 times.
The Group’s fresh fruit bunch production fell 1.5% y-o-y to 1.99 mil MT in 2022 due to higher rainfall which affected harvesting and logistics activities, along with a smaller harvesting area in Malaysia after replanting. As its Indonesian estates progressively mature, Genting Plantations is likely to see output growth in tandem with a higher proportion of prime-yielding trees, barring weather anomalies. Replanting will continue at its Malaysian estates 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 volatility and mounting scrutiny of environmental and social issues. The Group also contends with an evolving regulatory framework in Indonesia – where some 63% of its planted area is located – and foreign exchange risk arising from US dollar-denominated borrowings (46% of total debt as at end-June 2023). The currency risk is however moderated by US dollar payments for soft commodity exports.
Sean Lim, CFA
(603) 3385 2550
Thong Mun Wai
(603) 3385 2552
(603) 3385 2500
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Ratings on Genting Plantations Berhad