KUALA LUMPUR (Jan 19): The fine imposed by Indonesian authorities on Genting Plantations Bhd's (KL:GENP) 95%-owned subsidiary PT Susantri Permai will significantly weigh on the group's near-term earnings, said analysts.

In a note on Monday, CIMB Securities expects the fine to be booked as early as the fourth quarter of FY2025, potentially reducing FY2025 core net profit.

"The fine is likely to be recognised in 4Q2025 or 1Q2026, implying a 26.5% downside to FY2025 core net profit or a 10.8 sen hit to net book value, but is expected to be one-off," said the research house.

It noted that the group has not previously provided for such fines, although it had earlier impaired its Indonesian plantation assets to reflect potential land confiscation risks arising from overlapping forestry land issues.

Nonetheless, this should help clear the uncertainty over the group’s eventual monetary exposure from Indonesia’s forest area enforcement exercise, it added.

"There may also be some downside risk to the final dividend should the board opt to conserve cash following the payment," said CIMB while keeping its "hold" rating and target price of RM5.44 per share on the stock.

In a separate note, Hong Leong Investment Bank estimates the financial impact to be relatively modest in operational terms, citing a potential RM3 million to RM4 million loss in interest income, or less than 1.5% of FY2025 core net profit, assuming the fine is recognised in the fourth quarter. 

It noted that the fine is likely tied to previous Indonesian forestry provisions.

"While details of the alleged breach remain undisclosed, we believe the fine could be related to the same Indonesian forestry risk issue for which Genting Plantations made a provision in 1H2025," it added.

Genting Plantation recognised a RM66 million provision in 1Q2025 for potential income loss from parts of its Indonesian planted estates that Indonesian authorities had demarcated as forest land under its new forestry regulations, followed by a further RM94 million provision in 2Q2025.

Separately, Kenanga Research highlighted that while Genting Plantations has already provided for about 80% of the estimated potential income loss, it remains unclear whether the fine will allow the company to continue operating the affected estates or if further provisions may be required should the land be rezoned or confiscated.

"At this juncture, it is unclear whether the RM97 million fine is all Genting Plantations will have to face in which case Genting Plantations has overprovided. 

"On the other hand, its land may be rezoned or confiscated later, following this interim fine. If so, Genting Plantations may have underprovided by RM138 million as the RM159 million provided year to date is about 80% of the potential full amount of around RM200 million, and Genting Plantations still has to pay for the current interim administrative fine of RM97 million," said Kenanga.

Kenanga kept its ‘hold’ call on the stock, while HLIB maintained its ‘buy’ call on Genting Plantations.

As of Monday, the counter has two 'buy' and three 'hold' calls from analysts, with an average 12-month target price of RM5.54.

At the time of writing, the company's shares were five sen or 0.98% lower at RM5.03, valuing the group at RM4.5 billion. The stock is down 1.57% this year.

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Genting Plantations’ Indonesian unit fined RM97m by forest task force