Investment Highlights

• We maintain HOLD on FGV Holdings with an unchanged fair value of RM1.35/share, based on a FY24F PE of 18x, which is the 5-year average for big-cap planters. We attach a 3-star ESG rating to FGV.

• Here are the key takeaways from FGV’s analyst briefing yesterday: -

• FGV is hopeful of achieving an FFB growth of 6% in FY23E (4MFY23: -7.7% YoY). The group’s FFB production is expected to peak in 2HFY23. 2H is estimated to account for 54%-58% of full-year FFB output while 1H is envisaged to make up 42%-46%. Management attributed the weak FFB production in 1QFY23 to floods in some of its oil palm estates in Peninsular Malaysia.

• FGV does not face a significant shortage in labour anymore. Labour shortage is only 11% currently vs. the peak of 38%. FGV plans to bring in 900 workers from Indonesia and India in June or July 2023.

• FGV achieved a cost of production (ex-mill and land lease changes) of RM2,944/tonne in 1QFY23 vs. RM2,057/tonne in 1QFY22. Fertiliser costs climbed by 40% YoY in 1QFY23 while wages surged by 30%.

• In spite of this, FGV hopes to record a lower cost of production of RM2,400-RM2,500/tonne for the full year. Cost of production per tonne is expected to decline in 2HFY23 on the back of higher volume of production and fall in fertiliser costs.

• FGV is expected to submit its labour audit report to the US CBP in September 2023. Presently, Elevate, which is FGV’s consultant, is carrying out verification work on the remediation payments that FGV made to its foreign workers.

• FGV is currently trading at a pricey FY24F PE of 18x, which is higher than the 2-year average of 13x.

Source: AmInvest Research - 1 Jun 2023