Investment Highlights

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

• Our forecasts are maintained as FGV’s 9MFY22 core net profit (ex-land lease changes) was within our forecast but 23% below consensus estimates.

• FGV’s core net profit climbed by 68% YoY to RM785mil in 9MFY22 on the back of robust palm product prices. Average realised CPO price grew to RM4,989/tonne in 9MFY22 from RM3,475/tonne in 9MFY21. On a negative note, FGV’s FFB production declined by 2%.

• The increase in CPO price compensated for higher costs of production in 9MFY22. FGV’s cost of production (exdepreciation and land lease payments) increased to RM2,174/tonne in 9MFY22 from RM1,787/tonne in 9MFY21 due to higher costs of wages and fertiliser.

• Pre-tax profit of the logistics and others division rose to RM74mil in 9MFY22 from RM53mil in 9MFY21, underpinned by higher volume of throughput and increased handling charges. Pre-tax profit margin of the unit improved to 13.8% in 9MFY22 from 11.4% in 9MFY21.

• Comparing 3QFY22 against 2QFY22, FGV’s core net profit dived by 58% to RM125mil, dragged by higher cost of production and weaker palm product prices. Average realised CPO price slid to RM4,830/tonne in 3QFY22 from RM5,254/tonne in 2QFY22. FGV’s cost of production rose to RM2,262/tonne in 3QFY22 from RM2,203/tonne in 2QFY22.

• FGV is currently trading at a FY23F PE of 18x, which is higher than the 2-year average of 13x.

• There is a risk that Bursa Malaysia may suspend trading in FGV if the public shareholding spread is not resolved. FGV’s public shareholding stood at 13.1% as of 21 November.

• Bursa Malaysia has not announced whether it will give more time for FGV to resolve its public shareholding spread. The previous deadline was 3 August. FGV said that it has appointed an advisor to advise on various options to address the non-compliance of the public shareholding spread requirement.

Source: AmInvest Research - 1 Dec 2022