• Keep NEUTRAL and SOP-based MYR1.27 TP, 11% upside and c.4% FY25F yield. Post-analyst briefing, we make no changes to our forecasts. We expect earnings to remain decent in 4Q24 on higher CPO prices, albeit offset by moderating FFB output and higher unit costs on increased fertilisation activities. Valuation remains unexciting – the stock is trading at 11.2x FY25F P/E, at the high end of its peer range of 7-11x.

• 9M24 results recap. 9M24 core net profit came in above our and consensus expectations, at 136-223% of FY24F. Core net profit rose strongly QoQ in 3Q24 to MYR208.4m (from MYR42.6m in 2Q24).

• FFB output growth projected at 10-15% for FY24 and 5-8% for FY25. FGV Holdings noted that the peak output month this year was in August, with 3Q24 being the peak quarter. 4Q24 output is expected to moderate vs 3Q24 but still be stronger than 4Q23. As such, management is keeping to its 10- 15% FFB growth guidance for FY24. For FY25, it expects FFB growth to continue to grow, albeit at a slower rate of 5-8% YoY. To be conservative, we maintain our FY24 FFB growth forecast of 9.5%, and 3-4% for FY25-26.

• Labour shortages still prevalent. FGV’s blended group labour shortage is now at 9% (inclusive of Indonesia). However, breaking it down further, the shortage is at 12% in Sabah and 45% in Sarawak, while Peninsular Malaysia is at 95-100%. Going forward, management expects to resolve the shortages at Sabah by 1Q25, but Sarawak remains challenging. Nevertheless, Sarawak only comprises c.6% of FGV’s total planted area.

• Forward sales booked in for 4Q24. FGV has sold forward 50% of its West Malaysia 4Q24 output at above MYR4,000/tonne. For FY25, no forward sales have been booked in yet. With this, it is likely FGV may achieve slightly lower than market ASP’s for 4Q24.

• Unit costs expected to moderate in FY24 and FY25. 9M24 unit cost was at MYR2,552/tonne (-11% YoY) and FGV expects to end the year at MYR2,500/tonne average cost, as it may not be able to fully complete its fertiliser programme due to the monsoon season. For FY25, despite the impact of higher minimum wages (which management estimates at +MYR75/tonne or MYR85m pa), it expects unit costs to moderate slightly to MYR2,400-2,500/tonne, as production improves further. In addition, FGV has tendered for its 1H25 fertiliser requirements at prices 3-4% lower YoY.

• Maintain NEUTRAL and MYR1.27 TP. Post-analyst briefing, we make no changes to our forecasts. Our TP includes a 12% ESG discount. While we are positive on the strong earnings recovery this quarter, we are wary of its history of earnings volatility, hence maintain our call on the stock.

• Key risks include CPO price movement, weather, and demand and supply dynamics of the global vegetable oil industry.

Source: RHB Securities Research - 29 Nov 2024