Investment Highlights

• We maintain HOLD on FGV Holdings with an unchanged fair value of RM1.35/share, which is based on a FY24F PE of 18x- the 5-year average for big-cap planters. We attach a neutral 3-star ESG rating to FGV.

• FGV’s 1HFY23 core results (ex-land lease changes) were below our forecast and consensus estimates. FGV recorded a core net loss of RM131.5mil in 1HFY23 vs. our forecast of a net earnings of RM163.1mil for the full year. Consensus was expecting a net profit of RM415.8mil for FY23E.

• FGV’s performance fell short of our expectations due to an asset impairment of RM48.7mil, a lower than expected plantation pre-tax profit margin and higher than estimated effective tax rate. We have slashed FGV’s FY23E net profit by 78% to account for these. The asset impairment was mainly in respect of FGV’s Indonesian assets.

• Apart from the asset impairment, the 93% YoY plunge in FGV’s plantation pre-tax profit in 1HFY23 can be attributed to a drop in FFB production, lower palm product prices and a 37% increase in production costs.

• FGV’s average CPO price declined by 23% to RM3,995/tonne in 1HFY23 from RM5,165/tonne in 1HFY22. FFB production slid by 11% YoY in 1HFY23.

• On a positive note, pre-tax profit of the logistics and others division climbed by 69% YoY to RM60.9mil in 1HFY23 underpinned by the absence of impairment loss on receivables, higher handling charges and throughput volume. Pre-tax margin expanded to 16.6%in 1HFY23 from 10.9% in 1HFY22.

• FGV has proposed issuing Islamic redeemable preference shares (IRPS) to resolve its public shareholding spread issue. The IRPS will be issued on the basis of 1 IRPS for every 10 FGV shares held. The IRPS will be issued at zero cost to FGV’s shareholders.

• Currently, FGV’s public shareholding spread is 13.1% vs. the requirement of 25%. The issuance of the IRPS is expected to be completed in 1QFY24.

• FGV is currently trading at a FY24F PE of 19x, which is higher than the 2-year average of 13x.

Source: AmInvest Research - 29 Aug 2023