• Maintain SELL (TP: RM1.23). FGV Holdings (FGV) recorded a core LATAMI of RM39mn in 9M23 versus PATAMI of RM812mn in 9M22, dragged down by challenges within the Plantation and Sugar business, though partly mitigated by improvements in Logistic sector. PBT from plantation sector dropped significantly to RM186.6mn (-88%) due to lower FFB processed, stemming from the decline in external crops, as well as lower margins (1.6% from 9.1% in 9M22) resulting from decline in average CPO prices and a 35% increase in CPO cost ex-mill to RM2,871/MT during the period. As such, FGV’s results came-in below our and consensus estimates. Given the complex and demanding business landscape with sustained cost pressures, we revised lower our FY23/24 earnings forecast to RM69mn and RM66mn respectively from RM114mn and RM134mn previously. Maintain a SELL call with TP of RM1.23; based on FY24/25F BV/share of RM1.75 and hist. low 5-yrs avg. P/BV of 0.7x.

• Key highlights. Although FGV’s QoQ performance has shown positive improvement, core PBT for 3Q23/9M23 dropped 62%/93% respectively, no thanks to 1) lower profit from Upstream palm segment, driven by a lower ASP realised of CPO and higher YoY/YTD CPO production cost-ex mill of RM2,780/MT (25%) and RM2,871/MT (35%) respectively, 2) lower margins from downstream, fertiliser and rubber business, 3) share of loss results from associate of RM1.06mn and RM1.91mn respectively, and 4) losses in sugar business.

• Earnings Revision. We revised lower our FY23F/FY24F earnings forecast to RM69.4mn/RM65.9mn respectively; as we revisit our assumptions on costs and margins to better reflect our current and future expectations on FGV’s business operations.

• Outlook. Besides the challenges in the Sugar business, we anticipate further downward pressure from the plantation sector. This pressure affects both the upstream and downstream segments, driven by a significant reduction in the ASP of palm products, production levels lower than anticipated, persistently elevated production costs, and weakening margins in the downstream segments.

Source: BIMB Securities Research - 30 Nov 2023