Investment Highlights

• We maintain HOLD on FGV Holdings with an unchanged fair value of RM1.45/share, based on FY24F PE of 18x, which is the 5-year average for big-cap planters. We ascribe a neutral 3-star ESG rating to FGV.

• FGV has declared a final gross DPS of 3 sen for FY23 (FY22: 15 sen). The fall in dividends is not surprising as FGV reported a core net loss of RM95.6mil in FY23.

• FGV’s results were below our expectations and consensus. The group reported a FY23 core net loss of RM95.6mil (ex-land lease changes) compared to our forecast of a net loss of RM49.7mil and consensus estimates of net earnings of RM98.2mil.

• FGV’s results were disappointing due to lower-than- expected FFB production and higher-than-estimated costs of production. FGV’s cost of production (ex-LLA and depreciation) rose to RM2,761/tonne in FY23 from RM2,144/tonne in FY22 due to higher costs of upkeep, labour and manuring.

• FGV realised an average CPO price of RM3,901/tonne in FY23, which was 19% lower than RM4,832/tonne in FY22. FGV’s FFB production fell by 8.7% in FY23 as FFB yields were affected by the lack of fertiliser application in previous years.

• Pre-tax profit of the logistics and others division grew by 42% to RM148.4mil in FY23, underpinned by an increase in handling charges and absence of impairment losses on receivables. Pre-tax profit margin of the division rose to 17.8% in FY23 from 13.7% in FY22.

• FGV is expected to complete the issuance of IRPS (Islamic redeemable preference shares) in 4QFY24. This would help resolve FGV’s public shareholding spread, which stands at 13.1% currently. Recall that FGV has proposed to issue IRPS on the basis of 1 IRPS for every 10 FGV shares held.

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

Source: AmInvest Research - 27 Feb 2024