Investment Highlights

• We recommend a HOLD on FGV Holdings with a fair value of RM1.14/share. Our fair value for FGV is based on a P/BV of 1.0x.
• FGV’s 1HFY20 core net loss of RM81.5mil (ex-land lease changes (LLA)) was within our expectations and consensus estimates. We forecast a core net loss of RM49.6mil for FGV in FY20E while consensus estimates a core net loss of RM51.6mil.
• FGV recorded a larger core net loss of RM81.5mil (ex-land lease changes) in 1HFY20 compared with RM53.1mil in 1HFY19.
• FGV’s plantation division suffered from a plunge in FFB production in 1QFY20 when CPO prices were high and although FFB output recovered in 2QFY20, palm product prices fell.
• FGV’s FFB production slid by 13.8% YoY in 1HFY20 due to a reduction in fertiliser application and lagged impact of the drought, which took place in 3Q of 2019. FGV only applied 65% of its full-year fertiliser requirements in FY19.
• In 1HFY20, FGV applied 40% of its full-year fertiliser requirements as the MCO (movement control order) restricted fertiliser application in 2Q. On a positive note, FGV’s FFB production rebounded by 66.9% QoQ to 1.19mil tonnes in 2QFY20.
• Pre-tax losses (including land lease changes) of the plantation division (upstream and downstream) widened to RM105.0mil in 1HFY20 from RM14.3mil in 1HFY19 due to the fall in FFB production and higher cost of production.
• FGV’s production cost (ex-mill and LLA) was RM1,711/tonne in 1HFY20 compared with RM1,416/tonne in 1HFY19. Production cost (ex-mill and LLA) eased to an RM1,410/tonne in 2QFY20 from RM2,177/tonne in 1QFY20.
• The plantation division (upstream and downstream) swung into a pre-tax profit (including land lease changes) of RM47.1mil in 2QFY20 from a pre-tax loss of RM152.1mil in 1QFY20.
• FGV’s average CPO prices realised rose to RM2,453/tonne in 1HFY20 from RM1,972/tonne in 1HFY19. On a quarterly basis, average CPO prices realised declined to RM2,309/tonne in 2QFY20 from RM2,669/tonne in 1QFY20.
• The logistics division recorded a pre-tax profit of RM22.6mil in 1HFY20 vs. RM26.3mil in 1HFY19. The YoY fall in logistics earnings in 1HFY20 was due to a slide in throughput volume and decrease in rental income from bulking activities.

Source: AmInvest Research - 25 Aug 2020