KEY INVESTMENT HIGHLIGHTS

• Earnings returned to black
• Plantation business: profit jumped on higher FFB output
• Sugar subsegment turned into the red
• Earnings estimate: Maintained
• Maintain NEUTRAL with a revised TP of RM1.31

Earnings improved on better output. In 2QFY24, FGV's PATAMI surged to RM86.4m while core PATAMI registered higher at RM30.6m (>100%qoq, >100%yoy), mainly due decent performance from both plantation and logistics subsegment. Upstream division posted earnings expansion on better FFB and CPO output on top of the lower cost of production, while downstream subsegment; Oils & Fats Division recorded a higher margin, primarily due to the increased contribution from Bulk commodities. In contrast, the sugar business sank into the red on higher cost of production and competitive sugar market. Overall, the results came in broadly within/below our and consensus expectation at 45%/17% of full year estimates.

Plantation and Downstream division. During the quarter, upstream's earnings surprisingly surged by double digits, to RM172.0m (>100%yoy).

A part of the profit was supported by higher CPO production (+29.8%) and decent average CPO price realized at RM4,103/mt (+2.6%yoy), with CPO costs ex-mill narrowed to high at RM2,701 (2QFY23: RM2,947/Mt).

Meanwhile, a recovery in downstream profitability continued, albeit slower than expected RM94.2m (-5.0%yoy), margins were squeezed particularly in the export market, due to intense price competition and the low ceiling price imposed in April 2024. Lower margins registered from the chemical segment despite stronger overall sales volumes (+26.0yoy).

Sugar division. The sugar segment now reversed to -RM30.0m (>100%yoy) losses mainly due to a +14% increase in production costs, resulted from higher NY11, forex rate, and freight costs. Additionally, sales volume declined by -4%yoy due to lower demand from the wholesale and export segments.

Logistic and Support division. The bulking segment continued to gain decent earnings at RM32.0m (+28.0%yoy) on Bulking volume rose by +5.0%yoy, driven by increased CPO production and stronger demand for oleochemical and acid oils.

Earnings forecast. Maintained.

Maintain NEUTRAL. Our NEUTRAL call remains with a revised TP of RM1.31 (previously RM1.14) as we rollover valuation year to FY25 BV/PS of 1.64 pegged to 0.8x P/BV - nearly the -1SD of 2y historical average.

Source: MIDF Research - 28 Aug 2024