FGV Holdings reported a headline 1QFY23 net profit of RM8m (YoY: -97.8%), mainly dragged by a sharp decline in plantation earnings and wider losses from sugar segment due to high input cost coupled with lower sales volume despite increase in overall average selling price. No dividend was declared for the quarter. Management expects CPO prices to hover in the range of RM3,800-4,000/mt while FFB production is expected to be better this year due to additional migrant workers. As we redeploy our internal resources, we are ceasing research coverage of FGV. Our last call on the stock is Neutral with a TP of RM1.61.

• 1QFY23 financial performance. The Group reported a lower revenue of RM4.6bn, down 21.5% YoY, largely due to a decline in plantation (- 24.6%) and sugar (-0.8%) sales, partially offset by logistics and others (+10.6%). Headline profit tumbled 97.8% YoY to RM8m on the back weaker plantation earnings (-88%) while sugar losses expanded from RM30.7m to RM31.7m. On the other hand, logistics and others registered earnings growth of 71.7% to RM37.6m. Average CPO prices dropped from RM5,058/mt to RM3,988/mt while FFB production slipped 1.3% YoY to 815,534 mt.

• Low liquidity. The public shareholding spread currently stands at only 13.09%. The company has been granted 4th extension by Bursa Malaysia to comply with the public spread shareholding. The board of director is exploring the issuance of new Islamic preference shares, which is expected to take up to 8 months to comply.

• No sign of recovery in sugar business. The 51%-owned sugar business reported 6th consecutive quarterly losses as it continues to face cost pressure amidst high input costs, mainly, raw sugar, freight, natural gas, packaging materials, wages and inland logistics. As the local sugar prices are subject to government control, it is relatively difficult to pass on the additional costs to consumers unless it secures greenlight to float or raise the retail prices. Meanwhile, there is a potential delay in ramping up MSM’s refinery ‘s utilization factor in Johor as it takes time to secure the export contracts. Recently, government allows the sugar refiners to sell a new type of fine sugar at market price could potentially help turnaround the business in the long-term.

• Ceasing coverage. We are ceasing research coverage of FGV to reallocate our internal resources. Investors should no longer depend on any of our financial forecasts for FGV in making investment decisions, nor infer any adverse opinion as a result of our decision to cease research coverage.

Source: PublicInvest Research - 31 May 2023