Investment Highlights

• 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.

• Here are the key takeaways from FGV’s briefing yesterday: -
  • FGV’s FFB production is expected to be flat in FY23E. The group’s FFB output fell by 11% YoY in 1HFY23 due to dry weather in Peninsular Malaysia and impact of inadequate fertiliser application in FY20 and FY21. Due to the MCO and shortage of labour in FY20 and FY21, FGV did not complete the fertiliser programme at its oil palm estates.
  • On a positive note, FGV’s fertiliser application has picked up in FY23E. The group applied 41% of its fullyear fertiliser programme in 1HFY21.
  • FGV is currently facing a labour shortage of 13% or 3,500 workers. This is expected to be resolved by the end of FY23E. The group would be receiving 5,000 foreign workers from Indonesia and India in 2HFY23.
  • The productivity of FGV’s new workers is improving. Their harvesting yield has increased from a mere 1 tonne per day to 1.2 tonnes per day. The productivity is expected to expand further to 1.5-1.7 tonnes per day by the end of FY23E. This would be in line with the productivity of the existing harvesters.
  • FGV’s cost of CPO production (ex-mill and LLA) is estimated to be RM2,800/tonne in FY23E. Cost of production is expected to be lower in 2HFY23 vs. RM2,982/tonne in 1HFY23 due to a decline in upkeep costs and a higher volume of CPO output.
  • FGV has replanted about 7,278ha of ageing oil palm trees vs. the group’s target of 8,000ha in FY23E. Cost of replanting until maturity is RM20,000/ha-RM25,000/ha.
• FGV is currently trading at a fairly valued FY24F PE of 18x, near the 5-year average for large-cap planters.

Source: AmInvest Research - 30 Aug 2023