Investment Highlights

• We maintain SELL on FGV Holdings with an unchanged fair value of RM1.65/share. Our fair value for FGV is based on a FY23F PE of 22x. We ascribe a 3-star ESG rating to FGV.

• FGV’s 1QFY22 net profit exceeded our forecast by 14% and consensus estimates by 19%. We have raised FGV’s FY22F net profit by 13.7% to account for a higher average CPO price of RM4,500/tonne vs. RM4,000/tonne previously.

• The deadline for FGV to resolve its public shareholding spread is 3 August 2022. FGV’s public shareholding spread stood at 12.9% as at 25 May 2022.

• FGV swung into a core net profit (ex-land lease changes) of RM359.5mil in 1QFY22 from a core net loss of RM1.3mil in 1QFY21 underpinned by stronger palm product prices and production. On a negative note, FGV’s sugar division recorded a pre-tax loss of RM30.8mil in 1QFY22 vs. a profit of RM50.7mil in 1QFY21 dragged by higher costs of raw sugar and freight.

• Pre-tax of the plantation division surged to a profit of RM517.9mil in 1QFY22 from a loss of RM50.8mil in 1QFY21. Average CPO price realised grew to RM5,058/tonne in 1QFY22 from RM3,172/tonne in 1QFY21.

• FFB production growth was 12.1% YoY in 1QFY22. Last year, floods in Sabah affected FFB output. Also, we believe that the lagged effects of 2019 drought and haze on FFB yields are dissipating.

• Comparing 1QFY22 against 4QFY21, average CPO price realised increased by 20.6% to RM5,058/tonne from RM4,194/tonne. FFB production slid by 21% QoQ in 1QFY22.

• Cost of CPO production (ex-depreciation and land lease changes) rose to RM2,057/tonne in 1QFY22 from RM2,003/tonne in 1QFY21 due to higher costs of fertiliser and harvesting.

• Logistics division registered a higher pre-tax profit of RM21.9mil in 1QFY22 vs. RM11.7mil in 1QFY21 on the back of higher throughput volumes. Pre-tax profit margin of the division improved to 13.6% in 1QFY22 from 8.4% in 1QFY21.

Source: AmInvest Research - 1 Jun 2022