Investment Highlights

• We are downgrading FGV Holdings from HOLD to SELL with an unchanged fair value of RM1.08/share. Our fair value is roughly 0.9x of FGV's book value of RM1.22/share (as at end-FY18). FGV did not declare any dividend in 4QFY18.

• FGV’s target is to achieve a FFB production growth of 13.8% in FY19F vs. a decline of 1.2% in FY18. The group also aims to reduce its production cost per tonne (ex-mill) to RM1,469/tonne in FY19F from RM1,737/tonne in FY18. FGV plans to divest non-performing assets, which will fetch proceeds of RM350mil.

• Replanting of ageing oil palm trees will continue until FGV’s oil palm trees reach an average age of 14 years. This is expected to take place in year 2026. FGV plans to replant about 15,000ha of old oil palm trees in FY19F, which is the same as FY18.

• FGV’s FY18 core net loss (ex-land lease changes only) of RM1.2bil was above our forecast and consensus estimates as the group was still bleeding in 4QFY18.

• After a reported net loss of RM849.3mil in 3QFY18, FGV registered a net loss of RM208.8mil in 4QFY18. Net losses declined QoQ in 4QFY18 due to fewer impairments.

• In 4QFY18, FGV recorded impairments of RM113.1mil and a write-off of property, plant and equipment of RM48.5mil. In contrast, FGV recorded impairments of RM798.6mil on various assets in 3QFY18.

• Excluding the impairments, FGV would still be in the red in 4QFY18 due to the plunge in CPO price and losses in the sugar unit. FGV recognised a pre-tax loss of RM12.8mil in the sugar unit.

• Comparing 4QFY18 against 3QFY18, FGV’s plantation unit recorded an average CPO price of RM2,053/tonne. This was 7.7% lower than the RM2,224/tonne in 3QFY18. On a positive note, FGV’s FFB production rose by 6.9% QoQ in 4QFY18.

• FGV’s production cost improved to RM1,572/tonne in 4QFY18 from RM1,777/tonne in 3QFY18 as application of fertiliser declined. We believe that FGV applied most of its fertiliser in 9MFY18.

• Average CPO price realised slid by 18.3% to RM2,282/tonne in FY18 from RM2,792/tonne in FY17. Production cost (ex-mill) rose to RM1,737/tonne in FY18 from RM1,592/tonne in FY17.

Source: AmInvest Research - 1 Mar 2019