• Maintain SELL (TP: RM1.23). FGV Holdings (FGV) recorded a core PBT of RM41mn in 1Q24, compared to a loss of RM38mn in 1Q23 (PBT: RM50mn in 1Q24 versus RM60mn in 1Q23), primarily due to better performance in the Sugar and Oils & Fats sectors, although it was partly offset by losses in the Plantation sector. PBT from the Plantation sector dropped significantly to a loss of RM58.3mn from a profit of RM62.1mn in 1Q23. This decline was due to 1) lower FFB processed, stemming from a 10% YoY decline in FFB production to 736.5k MT and reduced crops from FELDA settlers and third parties, 2) a 2% YoY decline in average CPO prices realised, down to RM3,907/MT, 3) higher operational costs in estates, mainly due to the increased costs in upkeep, harvesting, and general charges, and 4) an increase in fair value charge on LLA to RM86mn from RM32mn in 1Q23. As a result, FGV's results fell below consensus estimates but were within our estimates at the PBT and revenue levels. Maintain a SELL call with TP of RM1.23; based on FY24/26F BV/share of RM1.65 and hist. low 5-yrs avg. P/BV of 0.74x.

• Key highlights. Management is optimistic that FFB production will grow by 10%-15% this year to 4.0mn-4.2mn tonnes, and will catch up in the coming quarter with a mini peak period in production expected in May and a peak month expected during the Sep-Oct period. A 5% decrease in FFB yield during the period was due to unfavourable weather conditions, including heavy rainfall at the beginning of FY24, and low bunch formation in the young and prime areas. On the sustainability front, FGV has reimbursed recruitment fees to its former workers, and this exercise will continue until the end of 2024, with a total reimbursement cost of RM2.9mn to 687 former FGV workers.

• Earnings Revision. No change in earnings forecast.

• Outlook. A downside risk to the plantation sector is expected to persist due to: 1) a lower-than-expected in the average selling price (ASP) of palm products, 2) lower-than-anticipated production levels attributed to low yield, aging trees, and a reduction in external crops, and 3) persistently elevated operational costs.

Source: BIMB Securities Research - 29 May 2024