Investment Highlights

• We maintain SELL on FGV Holdings with a lower fair value of RM1.20/share vs. RM1.25/share previously. Although FGV’s 9MFY21 net profit exceeded our forecast and consensus estimates, we believe that it would be difficult for FGV to maintain its profitability in FY22F due to lower palm product prices and higher costs of production.

• Our fair value for FGV is based on a FY23F PE of 22.0x. We have used FGV’s FY23F net profit to arrive at its fair value instead of FY22F as the Malaysia corporate tax rate is expected to normalise to 24% in 2023F. We ascribe a threestar ESG rating to FGV. Incidentally, the deadline for FGV to resolve its public shareholding spread is 3 February 2022. FGV’s public shareholding spread is 13.19% currently.

• FGV’s 9MFY21 results were sharply above our forecast and consensus estimates. We have raised FGV’s FY21E net profit by 309.7% to account for a higher plantation EBIT margin. FGV’s gross profit improved by 51.6% QoQ to RM827.4mil in 3QFY21 on the back of a 13.5% expansion in revenue.

• Plantation turnover increased by 15.0% QoQ to RM6.9bil in 3QFY21 underpinned by higher palm product prices and a 6% increase in FFB production. Average CPO price realised was RM3,798/tonne in 3QFY21 vs. RM3,333/tonne in 2QFY21.

• Comparing 9MFY21 against 9MFY20, FGV reported a core net profit (ex-land lease changes) of RM466.2mil compared with RM42.6mil. The earnings turnaround in 9MFY21 was driven by MSM Malaysia’s improved profits and stronger palm product prices. MSM benefited from higher selling prices of refined sugar in 9MFY21.

• FGV’s average CPO price realised rose by 37.0% to RM3,475/tonne in 9MFY21 from RM2,536/tonne in 9MFY20. On a negative note, FGV’s FFB production declined by 10.0% YoY in 9MFY21. We attribute the fall in FFB output in 9MFY21 to the shortage in estate workers and wet weather in Sabah in 1QFY21.

Source: AmInvest Research - 1 Dec 2021