Investment Highlights

• We maintain our SELL recommendation on FGV Holdings with an unchanged fair value of RM1.35/share. Our fair value for FGV is based on FY23F PE of 18x. We ascribe a 3-star ESG rating to FGV.

• FGV will be appealing to Bursa Malaysia for more time for the group to resolve its public shareholding spread issue. FGV plans to come up with a plan soon. Recently, Bursa Malaysia rejected the group’s application for an extension of time. The previous deadline was 3 August. FGV’s public shareholding spread stood at 13.1% as of 25 August. There is a risk that Bursa Malaysia may suspend trading in FGV Holdings if the public shareholding spread requirement is not resolved.

• FGV’s annualised 1HFY22 core net profit (ex-land lease changes) was 12% above our forecast but within consensus. FGV’s results exceeded our expectations due to a higher-than-expected plantation operating EBIT margin. We raise FGV’s FY22E net profit by 12% to account for this.

• On a quarterly basis, FGV’s core net profit fell by 16% to RM301mil in 2QFY22 dragged by a high effective tax rate of 37.2%. FGV’s effective tax rate rose to 37.2% in 2QFY22 from 20.4% in 1QFY22 due to the prosperity tax and nontax deductible expenses.

• Comparing 1HFY22 against 1HFY21, FGV’s core net profit surged to RM660mil from RM96mil on the back of strong palm product prices. Average CPO price realised grew by 58% to RM5,165/tonne in 1HFY22 from RM3,268/tonne in 1HFY21. FFB production however, edged down 1.2% YoY in 1HFY22.

• FGV’s cost of production (ex-depreciation and LLA) rose to RM2,125/tonne in 1HFY22 from RM1,825/tonne in 1HFY21 due to higher costs of wages and fertiliser.

• Pre-tax profit of logistics/others unit increased by 13% to RM36mil in 1HFY22 from RM32mil in 1HFY21 supported by a higher volume of throughput. Pre-tax profit margin of the division inched up to 10.9% in 1HFY22 from 10.7% in 1HFY21.

Source: AmInvest Research - 1 Sept 2022