Investment Highlights

• We are keeping our SELL recommendation on FGV Holdings with an unchanged fair value of RM1.10/share. Our fair value for FGV is based on a P/BV of 0.9x.

• We attended FGV’s briefing yesterday. FGV thinks that CPO prices would trade between RM2,200/tonne and RM2,400/tonne in FY20F. Average MPOB spot price was RM2,119/tonne in 2019.

• FGV’s target is to achieve an FFB production growth of 2% to 4% in FY20F compared with 5.6% in FY19E. FGV reckons that its FFB output would achieve a mini-peak in March or April 2020 after weakening in 2MFY20. Average age of FGV’s oil palm trees is envisaged to be 13.2 years in FY20F vs. 13.8 years in FY19.

• Currently, about 30% of FGV’s FFB are from its own estates while another 40% are from Felda’s oil palm estates. Third parties account for the balance 30% of FGV’s FFB supply.

• FGV plans to achieve an ex-mill production cost of less than RM1,500/tonne in FY20F compared with RM1,447/tonne in 9MFY19. In terms of all-in production cost, which include land lease agreement payments, FGV plans to achieve a cost of less than RM2,200/tonne.

• FGV plans to have physical presence in India in the future. The group may set up a trading house in India, which would facilitate seedlings and palm oil trade. Presently, FGV sells its palm products to traders in Malaysia such as Mewah International and Pacific Interlink. These traders would then sell FGV’s palm products to end customers in various countries.

• FGV is also planning to submit an appeal to the RSPO soon. The group would also be submitting an action plan to the RSPO in 1QFY20. The RSPO will be carrying out a verification audit on the seven issues (which had resulted in FGV’s suspension) in June or July 2020.

• Recall that in January 2020, the RSPO suspended the certification process of 20 of FGV’s palm oil complexes and reimposed the suspension on Kompleks Serting. The main issue was the undocumented status of FGV’s 7,000 workers in Sabah. FGV has legalised all of its workers in 4QFY19.

Source: AmInvest Research - 11 Feb 2020