• FY23 core net profit of RM97m (ex-EI) was below our and Bloomberg consensus’ expectations at 50% and 65% respectively.

• However, there was a sharp sequential improvement in 4QFY23 core net profit to RM201m albeit still down 47% yoy off a high year ago base.

• Reiterate Reduce with a GGM-derived TP of RM1.10, implying 10x CY24F P/E.

FY23 results below; 3.0 sen DPS declared

• FGV Holdings (FGV) FY23 core net profit of RM97m (excludes FV changes in LLA but includes cash payment of LLA and non-core items) trailed both our and Bloomberg consensus’ expectations, accounting for only 50% and 66% of the full-year estimates, respectively. This was mainly due to higher-than-expected zakat and taxation rate of

• FY23’s core net profit fell by 93% yoy dragged down by its plantation segment due to lower average CPO prices (-19% yoy), decrease in CPO sales volume (-10%) and

• Meanwhile, core net profit recovered sharply in 4QFY23 to RM201m (ex-EI) but dipped by 47% yoy. Compared to a year ago, numbers were down across its plantation division - lower CPO prices and sales volume as well as higher CPO cost (upstream), lower sales volume and margin erosion due to intense price competition from local and regional brands (downstream), and lower fertiliser gross margin due to decrease in sales

• Nonetheless, the Sugar business operating profit returned to the black in 4QFY23 driven by higher sales volume (+27% yoy) and ASP (+11% yoy), along with incentives received for its 1kg/2kg coarse grain sugar (CGS) and 1kg fine grain sugar (FGS) in Nov and Dec 2023 (RM24m/month).

Key takeaways from analyst briefing (26 Feb)

• Management guided an optimistic FY24F total FFB output growth of between 10-15% to 13.96m – 14.59m from 12.69m in FY23. The growth is anticipated to come from increase in labour productivity and higher fertiliser applications which will improve FFB yield – aiming to apply at least 90% of the required budget.

• Besides, management anticipates an improvement in CPO cost ex-mill in FY24F to RM2,200–2,300/MT driven by lower average fertiliser costs of RM1,950/tonne in FY24F vs. RM2,300/tonnes in FY23.

• Refinery and Oleochemicals are expected to remain challenging in FY24F due to soft global demand and margin erosion, management said.

Reiterate Reduce, with an unchanged GGM-derived TP of RM1.10

• Despite management’s optimistic outlook for its FFB output growth, we are a little more cautious given that 70% of its FFB output comes from external parties (smallholders and FELDA settlers). Additionally, we view FGV’s adoption of sustainability standards for external parties would potentially contribute to lower FFB output for the time being.

• Despite the lower-than-expected result, we maintain our FY24-25F earnings forecasts for now as Sugar profits should be a lot better, fertiliser costs lower and some growth in FFB volumes.

• We keep our Reduce call on FGV, with an unchanged GGM-derived TP of RM1.10, implying 10x CY24F P/E. The relatively low implied P/E, we think is justified by the lack of catalysts for its core business, volatile track record and challenging outlook within the downstream segment.

• Upside risks include robust quarterly results going into 2024F, reflecting stronger-than- expected contributions from its sugar company and increases in dividend payout.

Source: CGS-CIMB Research - 27 Feb 2024