FGV Holdings posted strong FY21 core earnings of RM821m on the back of stronger plantation earnings and a steep decline in both other operating expenses and fair value changes on land lease agreement, largely due to the revision in the yield assumptions. A final DPS of 8sen was declared for the quarter. No change to our forecasts as we have recently raised our numbers in tandem with higher CPO price assumptions. Maintain Neutral with an unchanged TP of RM1.71.

• Topline driven by stronger plantation sales. The Group 4QFY21 sales rose 54% YoY to RM6.2bn contributed by all core segments, namely plantation (YoY: +64%), sugar (YoY: +1.8%) and logistics (YoY: +36%) segments. Plantation sales jumped to RM5.4bn as realised CPO prices advanced RM3,059/mt to RM4,194/mt while 4QFY21 FFB production was slightly higher at 1m mt. Meanwhile, FY21 FFB production fell 7% YoY to 3.98m mt, translating into a lower FFB yield of 15.69mt/ha (FY20: 16.96mt/ha). OER was slightly higher at 20.54% compared to 20.32% a year ago. Meanwhile, sales contribution from 51%-owned sugar business rose 1.8% YoY to RM642m, attributed to an increase in overall average selling price. Meanwhile, logistics sales jumped 36% YoY to RM120.8m, attributed to higher handling rate.

• 4QFY21 reported profit surged to RM424m. The Group saw its core earnings returned to the black with core earnings of RM276m as stronger plantation earnings were partially offset by losses from sugar segment. The plantation pre-tax profit doubled to RM699m. Sugar segment made a loss of RM6.2m, attributed to lower gross margin due to higher raw sugar, freight and gas costs incurred. Earnings contribution from logistics segment tripled to RM38m, driven by higher handling rate and other segment registered a profit due to net reversal of impairment of RM6.1m recognized during the quarter.

• Appointing independent assessment. On the US Withhold Release Order suspension, FGV has appointed ELEVATE as its third-party assessor to conduct an independent assessment of FGV’s operations against the Independent Oversight Advisory Committee indicators of forced labour. They are currently finalizing a gap analysis based on desktop review and management interviews. The site assessments are expected to begin in April 2022.

• Privatization coming soon? The company’s public shareholding spread stood at 12.92% as of 23 Feb 2022. In the latest filing, the company’s major shareholder, FELDA, has informed the company that it wished to reiterate its intention not to maintain the listing status of the company. It is worth noting that FELDA currently owns a 79.9% stake.

Source: PublicInvest Research - 1 Mar 2022