• FGV’s FY17 PATAMI of RM143.7m was above our forecast of RM84.6m. However core PATAMI was RM32.3m vs. RM57m of our forecast.

• PBT improved 60% to RM416.6m on account of 1) higher contribution from plantation sector and logistics and other sector, 2) share of profit from JV of RM6.2m as opposed to a loss of RM19.5m in FY16; and 3) gain on disposal in AXA Affin of RM73m.

• On qoq basis, PBT increased more than double to RM246.3m on the back of 3% increase in revenue due to higher ASP of CPO, gain on disposal of AXA Affin, lower fair value charge in LLA by RM35m and lower raw sugar cost by 17% of 14cents compared to 3Q17.

• We maintain earnings forecast for FY18 and FY19, whilst changed TP to RM2.00 (RM1.59 previously). Upgrade to HOLD.

Core PATAMI returned to black

Adjusted for fair value changes in Land Lease Liabilities (LLA) and gain on disposal of AXA Affin of RM26.85m, FGV posted a core PATAMI of RM32.2m in FY17 vs. a loss of RM204.5m in FY16. The encouraging results were due to 1) higher CPO price realized; 2) increase in FFB and CPO production from 3.91m MT and 2.66m MT respectively in FY16 to 4.26m MT and 2.99m MT; 3) share of profit from JV of RM6.2m as opposed to a loss of RM19.5m in FY16; 4) higher margins in kernel crushing business; and 5) higher sales volume and forex gain in fertilizer business. Hence, EBIT margin improved to 3.2% from 2.2% in FY16.

Results could have been better

The results could have been better if not for small gain in sugar business following an increase in raw sugar cost of RM2,131/MT (FY16: RM1,778/MT), as well as weaker ringgit, plus impairment of receivables and assets of RM102m and provision for litigation loss in FGV trading of RM33m.

Better 4Q17 earnings qoq

On qoq basis, PBT more than doubled to RM246.3m on the back of 3% increase in revenue due to higher ASP of CPO, gain on disposal of AXA Affin, lower fair value charge in LLA by RM35m, lower raw sugar cost by 17% to 14cents, decline in CPO production cost ex-mill to RM1,474/MT as opposed to RM1,541/MT in 3Q17, and compensation received from engineering services company amounted to RM7m due to project termination by FELDA.

Maintain forecast but TP changed to RM2.00

We made no changes to our FY18 and FY19 earnings forecast at RM153.2m and RM197.4m respectively. We believe earnings will improve as management has indicated their commitment to improve operational and costs measure across the Group. Core PATAMI has returned to black to register at RM32.3m in FY17 on account of strong performance from plantation, and logistics and others sectors. We expect the recovery to continue in FY18. We have revised our TP to RM2.00 (RM1.59 previously) based on Price to Book target of 1.3x. Upgrade to HOLD.

Source: BIMB Securities Research - 26 Feb 2018