• Bloomberg reported that FGV has shut down 22 oil palm estates and five palm oil mills in its Sahabat region in Sabah amid testing of workers for the virus.

• Three individuals, who tested positive in Lahad Datu last Saturday were from FELDA settlements and they or close contacts may have travelled to surrounding FELDA areas.

• In the same article, FGV’s Group CEO said that overall productivity in Sabah is expected to decline by 10% in FY20F. He added that FELDA Sahabat only contributes about 9% to FGV’s total FFB production. Hence, the impact on FGV’s bottomline is less than 1%.

• In spite of the CEO’s comments, we reckon that this development is negative for FGV as the group’s FFB and CPO production will be affected by the suspension of all harvesting and milling activities in Sabah.

• FGV has about 128,692ha of oil palm estates in Sabah. Out of these, FELDA Sahabat has about 115,432ha of planted areas.

• FELDA Sahabat makes up about 29% of FGV’s total planted areas in Malaysia. In total, Sabah is estimated to account for 37.9% of FGV’s planted areas of 339,385ha.

• FGV’s estates in Sabah of 128,692ha are 8.3% of Sabah’s total planted areas of 1.5mil ha.

• Assuming that FGV’s operations in the whole of Sabah are closed for two months, we estimate that this would affect 6% of group FFB production.

• Currently, we forecast that FGV’s FFB output would improve by 3% in FY20F.

• IJM Plantations, Genting Plantations, IOI Corporation, TSH Resources and Kuala Lumpur Kepong do not have infected workers. Hence, we believe that their operations in Sabah would still be allowed to resume.

• We maintain SELL on FGV with a fair value of RM0.70/share.

Source: AmInvest Research - 20 Apr 2020