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.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....