Investment Highlights

• We maintain HOLD on FGV Holdings with a lower fair value of RM1.35/share vs. RM1.60/share previously. Our fair value for FGV is now based on a rolled-forward FY24F PE of 18x, at parity with the 5-year average for big-cap planters. We attach a 3-star ESG rating to FGV.

• FGV’s 1QFY23 results (ex-land lease changes) were below our expectation and consensus estimates. The group reported a core net loss of RM74mil in 1QFY23 compared to our earlier net profit of RM327.5mil and consensus’ RM638mil for FY23E.

• FGV’s results fell short of expectations due to a squeeze in plantation pre-tax profit margin and losses at the sugar unit. We have reduced FGV’s FY23E net profit by 53% and FY24F net earnings by 26% to account for these.

• FGV’s plantation pre-tax profit plunged by 88% to RM61.9mil in 1QFY23 from RM517.9mil in 1QFY22. Average CPO price declined by 21% to RM3,988/tonne in 1QFY23 from RM5,058/tonne in 1QFY22. FGV’s FFB production edged down by 1.3% YoY in 1QFY23.

• The sugar division recorded a larger pre-tax loss of RM31.7mil in 1QFY23 vs. RM30.8mil in 1QFY22. MSM was affected by a drop in sales volume and an increase in the cost of production.

• On a positive note, pre-tax profit of the logistics and others division surged by 72% YoY to RM37.6mil in 1QFY23. This was driven by higher throughput volume and handling charges. Pre-tax profit margin of the division rose to 20.4% in 1QFY23 from 13.6% in 1QFY22.

• FGV continues to face the risk of being suspended as its public shareholding spread is only 13.1%. Bursa Malaysia has set a deadline of 2 September 2023 for FGV to resolve its public shareholding spread.

• Currently, FGV is mulling issuing new Islamic preference shares to rectify its public shareholding spread. However, the proposal is dependent on the approval of authorities, FGV’s board of directors and shareholders. FGV will announce the details of the corporate proposal, which is expected to take 5 months to complete, by the end of June 2023.

• FGV is currently trading at a pricey FY24F PE of 18x, higher than the 2-year average of 13x, although dividend yield is attractive at 6%.

Source: AmInvest Research - 31 May 2023