Investment Highlights

• We maintain SELL on FGV Holdings (FGV) with an unchanged fair value of RM1.10/share. Our fair value implies a P/BV ratio of 0.9. FGV’s book value was RM1.15/share as at end-Dec 2019. FGV has declared a final gross DPS of 2 sen for 4QFY19.

• On a reported basis, FGV’s net losses narrowed to RM242.2mil in FY19 from RM1.1bil in FY18 due to lower impairments. FGV recorded impairments of RM269mil in FY19 vs. RM949mil in FY18.

• FGV’s FY19 core net loss (ex-land lease changes only) of RM299.3mil was higher than consensus estimates of RM100.2mil and our expectations of RM120.2mil. Although FGV’s performance improved in 4QFY19, we had expected the group to swing into the black. MSM Malaysia’s 4QFY19 net loss was also larger than estimated.

• FGV registered a smaller core net loss of RM5.1mil (exland lease changes only) in 4QFY19 vs. RM241.0mil in 3QFY19. FGV’s selling and distribution item became a positive RM17.9mil in 4QFY19 from a RM60.4mil expense in 3QFY19.

• Apart from the absence of impairments, FGV’s improved performance in 4QFY19 was driven by higher selling prices of palm products and an earnings turnaround in the logistics division.

• FGV’s upstream plantation division chalked up a pre-tax profit of RM81mil in 4QFY19 compared with a loss of RM109.0mil in 3QFY19. In contrast, pre-tax profit of the downstream division fell to RM0.4mil in 4QFY19 from RM34.0mil in 3QFY19.

• Average CPO price improved by 8.9% to RM2,159/tonne in 4QFY19 from RM1,983/tonne in 3QFY19. FFB production slid by 18.4% QoQ in 4QFY19. FFB production growth was 5.6% in FY19.

• Pre-tax of the logistics division swung to a profit of RM8.6mil in 4QFY19 from a loss of RM4.7mil in 3QFY19. The earnings turnaround in 4QFY19 was driven by the absence of impairments and higher throughput. Comparing FY19 against FY18, pre-tax profit of the division fell to RM30.2mil from RM67.6mil partly due to impairments of about RM54mil.

Source: AmInvest Research - 2 Mar 2020