Stripping out i) net unrealized FX loss (RM19.5m), ii) reversal of impairment on asset held for sale (RM15.1m) and iii) net impairment loss on property, plant and equipment (RM79.2m) as well as adjustment for the LLA, FGV posted FY22 core earnings of RM1.2bn, mainly led by stronger plantation and logistics earnings despite bigger losses from sugar segment. The results were above our and the consensus full-year expectations, making up 119% and 108%, respectively. We raised our FY23-25F earnings forecasts by 2%-17% to reflect lower production costs. Maintain Neutral with an unchanged TP of RM1.61 as we input lower valuation for sugar segment due to the steep losses despite higher valuation from plantation segment. A bumper DPS of 11sen was declared for FY22 (vs FY21: 8sen).

• 4QFY22 topline slipped 1.2% YoY. 4QFY22 sales softened by 1.2% YoY to RM6.1bn, dragged by plantation (-2.1%) and logistics & others (-8.3%) Plantation sales dropped to RM5.3bn as average CPO prices advanced from RM4,194/mt to RM4,432/mt (FY22: RM4,832/mt, YoY: +32%) while FFB production rose 7.6% to 1.13m mt (FY22: 3.99m mt, YoY: +0.3%). FY22 OER slipped from 20.54% to 20.35%. Meanwhile, sales contribution from its 51%-owned sugar business increased by 6.1% YoY to RM680.9m, attributed to an increase in overall average selling price despite a 5% decline in sales volume. Meanwhile, logistics sales contracted to RM111m.

• 4QFY22 core earnings rose 12% YoY to RM310m. The Group saw its core earnings rising from RM276m to RM310m, mainly attributed to weaker earnings contribution from plantations (-25%) and bigger losses from sugar segment. 4QFY22 CPO cost (ex-sales & windfall taxes) rose by 14% YoY to RM2,196/mt, due to an increase in manuring, upkeep and maintenance costs. Sugar segment made a bigger loss of RM46m, attributed to higher input costs (YoY: +18%) mainly on raw sugar (+16%), natural gas (+62%) and higher refining (+25%) costs and the weakening of the Malaysian Ringgit (+7%). Stripping out the impairment on receivables of RM3.1m, the logistic segment registered a higher profit of RM33.3m, up 32% YoY, led by bulking business on the back of higher volume of premium oil and an increase in throughput handled.

• Prospects. The foreign labour shortage has declined from 32% in 2021 to 13% following the intensified recruitment efforts. In tandem with FGV’s No Recruitment Fees policy, the Group will reimburse its current and former foreign workers amounting to RM111.6m, which will be made in three tranches between March and Sept 2023. Management has targeted FFB production growth of 10%-15% for FY23 and it plans to replant 21,000ha. Meanwhile it does not see impact on its export EU even with new deforestation rules as it produces certified sustainable palm oil. Lastly, it expects the US Customs and Border Protection to lift its withhold release order by year-end after submitting its final report to US CBP by 1QFY23.

Source: PublicInvest Research - 28 Feb 2023