Investment Highlights

• We are upgrading FGV from SELL to HOLD with an unchanged fair value of RM1.08/share. FGV’s share price has fallen below our fair value. Our fair value of RM1.08 is 0.7x FGV's book value of RM1.54/share (as at end-FY17). FGV’s book value was RM1.30/share as at end-September 2018.

• FGV reported net losses of RM849.3mil in 3QFY18 and RM871.2mil in 9MFY18. Included in FGV’s net loss in 3QFY18 were impairments of RM798.6mil on its investment in Asian Plantations Ltd (RM513mil), FGV Cambridge Nanosystems (RM53mil), property, plant and equipment (RM135.9mil), receivables (RM73.4mil), amounts due from joint venture (RM22.1mil) and investment properties (RM1.2mil).

• Excluding the impairments and land lease adjustments, we estimate FGV’s core net losses to be RM37.5mil in 3QFY18 and RM133.2mil in 9MFY18. Due to weak plantation earnings, we are now forecasting a core net loss of RM126.3mil for FGV compared with a net profit of RM34.5mil previously.

• Excluding the impairments, the plantation unit recorded an estimated pre-tax loss of RM152.4mil in 9MFY18 against a profit of RM255.1mil in 9MFY17. Production cost (ex-mill) rose from RM1,631/tonne in 9MFY17 to RM1,800/tonne in 9MFY18.

• Average CPO price realised slid by 15.9% from RM2,820/tonne in 9MFY17 to RM2,371/tonne in 9MFY18. FGV’s FFB production growth was a poor (-0.4%) YoY in 9MFY18 as FFB yields in Sabah were hit by lagged impact of El Nino and tree stress.

• Comparing 3QFY18 against 2QFY18, pre-tax losses (excluding impairments) of the plantation divisionwidened from RM6.5mil to RM164.2mil due to higher LLA charges. LLA charge was RM102.3mil in 3QFY18 vs. RM28.2mil in 2QFY18.

• CPO Production cost was RM1,777/tonne in 3QFY18 vs. RM1,884/tonne in 2QFY18. Average CPO price was RM2,224/tonne in 3QFY18 compared with RM2,419/tonne in 2QFY18. On a quarterly basis, FGV’s FFB production grew by 8.3% in 3QFY18.

• The logistics unit recorded a smaller pre-tax profit of RM25.1mil in 9MFY18 vs. RM25.6mil in 9MFY17 as it swung into a pre-tax loss of RM31.6mil in 3QFY18. This was due to an impairment of RM54.8mil on receivables and lower tonnage sold under the commodities marketing business.

Source: AmInvest Research - 29 Nov 2018