• In a letter to shareholders, which was released on the Bursa Malaysia website, FGV’s chairman said that the group has identified several non-core businesses and assets worth RM350mil for disposal.
• Also, he said that FGV’s targets are an FFB yield of 19.4 tonnes/ha and production cost (exmill) of RM1,469/tonne for FY19F compared with an FFB yield of 16.9 tonnes/ha and production cost of RM1,666/tonne in FY18E.

• In addition, it is estimated that FGV will record a pre-tax profit of RM1bil based on an average CPO price of RM2,500/tonne.

• We think that the proposed disposal of non-core assets worth RM350mil would help generate some cash for FGV. The group’s gross cash stood at RM1.74bil as at end-FY17. Including loans and amounts due to the shareholder, FGV’s net debts were RM4.2bil as at end-FY17. Net gearing was 75.4%.

• We believe that one of the assets slated for disposal is FGV Cambridge Nanosystems, which has already been classified as an asset for sale in FGV’s balance sheet. It had a net book value of RM72.2mil as at end-December 2017.

• We reckon that the other assets for sale may be related to travel or property such as the Troika condominiums.

• The proposed disposal of the assets would result in a one-off disposal gain to FGV. Operationally, whether or not FGV swings into the black would depend on CPO prices and the group’s production costs.

• We maintain HOLD on FGV with a fair value of RM1.08/share, which is 0.7x of FGV’s book value of RM1.54/share as at end-FY17. FGV’s book value was RM1.30/share as at endSeptember 2018.

Source: AmInvest Research - 15 Jan 2019