Investment Highlights

• We upgrade FGV Holdings to HOLD from SELL with a higher fair value of RM1.60/share vs. RM1.35/share previously. We raise FGV’s net profit by 21% to account for a stronger FFB production growth of 6% vs. 3% originally and a higher plantation EBIT margin. Our fair value for FGV is based on a FY23F PE of 18x, which is the 5-year average for big cap planters. We ascribe a 3-star ESG rating to FGV.

• FGV’s FY22 core net profit (ex-land lease changes) was 12% above our forecast but 16% below consensus estimates. FGV’s results exceeded our expectations as share of profit in a joint venture surged to RM73.5mil in 4QFY22 from RM10.8mil in 3QFY22. This was due to disposal of a subsidiary.

• The group has declared a final gross DPS of 11 sen, which brings total gross DPS to 15 sen for FY22 (FY21: 8 sen). This translates into an impressive yield of 10.4%.

• FGV’s FY22 core net profit climbed by 31% to RM992.3mil, underpinned by healthy palm product prices. Plantation pre-tax profit surged to RM2.1bil in FY22 from RM1.6bil in FY21 while pre-tax earnings of the logistics unit grew by 15% to RM104.2mil. A drag was the sugar division, which posted a pre-tax loss of RM177.2mil in FY22.

• Average realised CPO price increased by 32% to RM4,832/tonne in FY22 from RM3,671/tonne in FY21. FFB production was flat at 4mil tonnes in FY22.

• Pre-tax profit of the logistics/others division improved in FY22 on the back of increases in throughput volume and handling charges. Pre-tax profit margin expanded to 13.7% in FY22 from 9.6% in FY21.

• FGV is currently trading at a premium FY23F PE of 16x, which is higher than the 2-year average of 13x.

• We believe that FGV may be suspended as it does not comply with the public shareholding spread of 25%. FGV’s public shareholding spread stood at 13.1% as at 22 November 2022. Bursa Malaysia has not said whether FGV will be granted more time to resolve its public shareholding spread issue.

Source: AmInvest Research - 28 Feb 2023