Investment Highlights

• We maintain SELL on FGV Holdings with a lower fair value of RM1.25/share (vs. RM1.29/share originally). Our fair value for FGV implies a FY22F PE of 25.0x. This is the PE, which we have also used to derive the fair values of IOI Corporation and KL Kepong. Previously, we had assumed a P/BV of 1.1x to value FGV. As FGV is expected to return to the black in FY22F, we have switched our valuation method back to PE. We ascribe a three-star ESG rating to FGV.

• The deadline for FGV to resolve its public shareholding spread problem is 3 August 2021. Currently, FGV’s public shareholding spread is 13.99% vs. the listing requirement of 15.0%. The one-percentage point requirement implies that about 36.9mil shares must be issued or placed out.

• We have revised FGV’s FY21F net profit downwards by 10.1% to account for a weaker operating profit margin. However, we have kept the group’s FY22F net profit unchanged at RM182.4mil.

• In spite of robust palm product prices, FGV reported a core net loss (adjusted for land lease changes) of RM1.3mil in 1QFY21. This was below our original forecast of a core net profit of RM149.1mil for the full year and consensus estimates of a core net profit of RM282.8mil. The shortfall was due to a 16.3% YoY drop in sales volume of CPO, which offset higher selling prices.

• FGV’s average CPO price realised was RM3,172/tonne in 1QFY21, 18.8% higher than the average price of RM2,669/tonne realised in 1QFY20. FGV’s FFB production growth was 4.3% YoY in 1QFY21. We have assumed a FFB output growth of 6.0% for FGV in FY21F vs. a decline of 3.6% in FY20.

• Sugar division swung into the black in 1QFY21. In FGV’s books, sugar unit’s pre-tax profit was RM50.7mil in 1QFY21 in contrast to a pre-tax loss of RM27.9mil in 1QFY20. The sugar division benefited from a fall in raw sugar costs and higher selling prices in 1QFY21.

• Pre-tax profit of FGV’s logistics division rose by 20.7% YoY to RM11.7mi in 1QFY21 on the back of higher handling and transportation charges. The division’s revenue increased by 5.3% YoY to RM140.0mil in 1QFY21.

Source: AmInvest Research - 31 May 2021