Investment Highlights

• We maintain SELL on FGV Holdings with an unchanged fair value of RM1.25/share. Although we have raised FGV’s FY22F net profit by 12.8% to account for a higher average CPO price of RM3,000/tonne vs. RM2,800/tonne previously, we have lowered our PE assumption to 22.0x from 25.0x. This also reflects the sector’s de-rating due to ESG risks.

• For FY21E, we have raised FGV’s net profit by 30.1% to account for a higher plantation pre-tax profit margin and an average CPO price of RM3,500/tonne vs. RM3,000/tonne originally. FGV’s core net profit of RM96.4mil (ex-land lease changes) in 1HFY21 was 34.3% above our forecast but 38.6% below consensus.

• The deadline for FGV to resolve its public shareholding spread has been extended to 3 February 2022 from 3 August 2021. FGV’s public shareholding spread is 13.47% currently vs. the listing requirement of 15.0%.

• FGV recorded a core net profit of RM96.4mil in 1HFY21 vs. a core net loss of RM81.5mil in 1HFY20. FGV swung into the black in 1HFY21 on the back of higher palm product prices and an earnings turnaround in MSM Malaysia.

• FGV’s average CPO price realised climbed by 33.2% to RM3,268/tonne in 1HFY21 from RM2,453/tonne in 1HFY20. On a negative note, FFB production growth was -5.3% YoY in 1HFY21.

• Pre-tax profit of FGV’s logistics and others division increased by 40.9% YoY to RM31.9mil in 1HFY21 supported by higher tonnage and bulking volume.

• Comparing 2QFY21 against 1QFY21, FGV reported a core net profit of RM97.7mil vs. a core net loss of RM1.3mil. FGV swung into profitability in 2QFY21 as sales volume of CPO recovered in 2QFY21. FGV’s FFB production surged by 42.5% QoQ in 2QFY21.

• Recall that in spite of high CPO prices, FGV was in the red in 1QFY21 due to a 16.3% drop in sales volume of CPO. Sales volume of CPO fell in 2QFY21 due to a fall in purchases of FFB from third parties.

• FGV’s average CPO price realised was RM3,333/tonne in 2QFY21 compared with RM3,172/tonne in 1QFY21.

Source: AmInvest Research - 1 Sept 2021