Review

• FGV’s 1QFY24 results came in below expectations mainly due to lower contributions from the Plantation division. Excluding the impact of fair value change in relation to the Land Lease Agreement (LLA), and other non-core items, the group registered a core net loss of RM22.0mn compared to a loss of RM86.0mn reported for the same period last year.

• Plantation: 1QFY24 saw a 9.8% YoY decrease in FFB, which can be attributed to a 5.3% drop in FFB yield. The realised CPO price declined by 2.0% to RM3,907/tonne while PK price increased by 3.1% to RM2,060/tonne. The average production cost (ex-mill) remained flattish at RM2,897/tonne in 1QFY24. Consequently, this segment reported a LBT of RM62.1mn, in contrast to a PBT of RM58.3mn recorded the previous year.

• Oils & Fats: 1QFY24 PBT amounted to RM26.6mn, a significant increase from RM5.2mn in 1QFY23. The rise was attributable to higher contribution from Bulk Commodities, which achieved higher margins.

• Sugar: Due to higher ASP and increased sales volume, this division reported a PBT of RM67.2mn, a notable improvement from a LBT of RM31.7mn. Additionally, the enhancement can be credited to improved plant utilization rates and incentives received for certain packaged sugar sold in the domestic market.

• Logistics and Others: This division reported a lower PBT of RM32.6mn (-13.4% YoY), mainly due to lower throughput in the bulking segment and lower contribution from the IT and Support businesses.

• No dividend was declared for the quarter under review.

Impact

• The earnings forecasts for FY24 and FY25 have been adjusted downward by 37.2% and 25.3%, respectively, following the lower-than-expected 1Q results and decreased contributions from the plantation division. Additionally, we have introduced our FY26 earnings forecast of RM2mn (- 2.9% YoY). Some key-highlights from the briefing:

• Management expects the CPO prices would remain within the range between RM3,800 and RM4,000 per tonne for FY24.

• The FFB production guidance for FY24 remains unchanged, with an expected growth rate of 10-15%, supported by improved yield and the ease of labour shortages.

• FGV's current labour shortage stands at 10%, (~ 3,000 workers), in relation to the total estate workforce requirements. However, management anticipates that the labour shortage issue would be alleviated in the future as they are actively seeking to recruit more workers from Indonesia.

• The Group intends to submit a petition to the United States Customs and Border Protection (CBP) in June 2024, seeking to modify the Withhold Release Order (WRO). Management anticipates that the process of lifting the WRO will span approximately 9 to 12 months.

• Meanwhile, the group has allocated RM605mn over three years to upgrade and construct new housing for migrant workers.

Valuation

• We downgrade FGV to SELL from Hold with a revised target price of RM1.34/share (Previously RM1.50), based on 0.8x CY25 P/BV. We do not see any re-rating catalysts in the near term for the stock.

Source: TA Research - 29 May 2024