We maintain HOLD on FGV Holdings with an unchanged fair value of RM1.35/share, which is based on a FY24F PE of 18x- the 5-year average for big-cap planters. We attach a neutral 3-star ESG rating to FGV.
FGV’s 1HFY23 core results (ex-land lease changes) were below our forecast and consensus estimates. FGV recorded a core net loss of RM131.5mil in 1HFY23 vs. our forecast of a net earnings of RM163.1mil for the full year. Consensus was expecting a net profit of RM415.8mil for FY23E.
FGV’s performance fell short of our expectations due to an asset impairment of RM48.7mil, a lower than expected plantation pre-tax profit margin and higher than estimated effective tax rate. We have slashed FGV’s FY23E net profit by 78% to account for these. The asset impairment was mainly in respect of FGV’s Indonesian assets.
Apart from the asset impairment, the 93% YoY plunge in FGV’s plantation pre-tax profit in 1HFY23 can be attributed to a drop in FFB production, lower palm product prices and a 37% increase in production costs.
FGV’s average CPO price declined by 23% to RM3,995/tonne in 1HFY23 from RM5,165/tonne in 1HFY22. FFB production slid by 11% YoY in 1HFY23.
On a positive note, pre-tax profit of the logistics and others division climbed by 69% YoY to RM60.9mil in 1HFY23 underpinned by the absence of impairment loss on receivables, higher handling charges and throughput volume. Pre-tax margin expanded to 16.6%in 1HFY23 from 10.9% in 1HFY22.
FGV has proposed issuing Islamic redeemable preference shares (IRPS) to resolve its public shareholding spread issue. The IRPS will be issued on the basis of 1 IRPS for every 10 FGV shares held. The IRPS will be issued at zero cost to FGV’s shareholders.
Currently, FGV’s public shareholding spread is 13.1% vs. the requirement of 25%. The issuance of the IRPS is expected to be completed in 1QFY24.
FGV is currently trading at a FY24F PE of 19x, which is higher than the 2-year average of 13x.
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....