FGV Holdings made a strong comeback with core earnings of RM424m for 9MFY21 after stripping out net impairment loss of financial assets (RM7.6m) and net unrealized FX gain (RM5.1m). The 9MFY21 results beat our and consensus full-year forecasts, making up 128% and 122%, respectively. The stronger-than-expected results were mainly led by stronger plantation earnings and a sharp increase in earnings contribution from jointly controlled entity. No dividend was declared for the quarter. In view of the stronger-than-expected results, we revise up our FY221-23F earnings forecasts by 54%-100% after imputing in higher profit margin for plantation segment. Consequently, we raise our SOP-based TP from RM1.59 to RM1.62. We also attach a 20% discount in our valuations in view of the prolonged measures taken to address its ESG concerns.

• Topline driven by stronger plantation sales. The Group 3QFY21 sales rose 33% YoY to RM5.3bn contributed by plantation and logistics segments despite weaker sugar sales. Plantation sales jumped 41% YoY to RM4.6bn as realised CPO prices advanced RM2,645/mt to RM3,798/mt despite a 14% drop in CPO production. Meanwhile, 9MFY21 FFB production fell 10% YoY to 2.92m mt, translating into a lower FFB yield of 11.53mt/ha. OER was slightly higher at 20.35%. Meanwhile, sales contribution from 51%-owned sugar business dropped 7.7% YoY to RM548.7m, attributed to a 22% decline in sales volume due to prolonged lockdown and also partly due to annual planned maintenance. Meanwhile, logistics sales rose 4.9% YoY to RM83.5m, underpinned by improved contribution from bulking (+8%) segment, partially offset by weaker transport (-6% YoY) segment.

• 3QFY21 core earnings surged to RM401m. The Group saw its core earnings jumping from RM218m to RM401m. The plantation pre-tax profit doubled to RM481.2m. Sugar would have made a loss if not because of the gain from liquidation of excess raw sugar hedges amounting to RM30.9m. Earnings contribution from logistics segment rose 41% YoY to RM20.9m, attributed to higher bulking and transport earnings.

• Expecting foreign workers to arrive by end-1Q22. The Group, which is currently operating at 70% workforce, expects the first batch of the 7,000 foreign workers that it plans to hire to arrive by the end-1Q22 due to stricter Covid-19 compliance. It added that the impact on production would only be seen by 2Q 2022. Meanwhile, the site assessments by Elevate, which is the independent auditor appointed to assess the group’s operations against the 11 international Labour Organisation indicators of forced labour, is expected to commence in the 1H 2022. Lastly, the upstream plantation has completed 7,573ha of felling and replanted 521ha as at 3QFY21.

Source: PublicInvest Research - 1 Dec 2021