• FGV’s recorded a net loss of RM21.9m in 1H18 with revenue of RM7.04m (-17% yoy) on account of lower ASP of palm products as well as lower sales volume from Sugar and Rubber business.

• Loss in share of results from associates and JV, higher finance costs and administrative expenses aided to the unsatisfactory performance.

• On quarterly basis, PATAMI was a loss of RM23m vs. profit of RM1m in 1Q18 on account of lower revenue and lower margins in plantation business as well as lower share of results from JV.

• We revised our earnings forecast lower for FY18 and FY19 to RM23m and RM37m respectively from RM91m and RM142m previously with new TP of RM1.60 (RM1.66 previously). Maintain HOLD.

Results below expectations

Adjusted for FV in LLA, FGV posted a PBT of RM134m vs. RM191m in 1H17. The weak result was due to 1) decreased in plantation margin due to lower ASP realised of CPO and higher CPO production costs by 7% (Table 3); 2) losses suffered in kernel business; and 3) share of loss from joint ventures and associates. However, the lower result was partially offset by improvement in logistics and others business and sugar profits due to lower raw sugar costs (Table 2).

Weakness in plantation segment

On quarterly basis, PBT (adjusted for FV in LLA) decreased 72% as a result of lower contribution from plantation sector during the period. Lower average CPO price of RM2,419/MT (1Q18: RM2,472/MT), higher CPO production cost, decrease in CPO sales volume and share of loss from JV aided to the lower results. Average CPO production cost was higher 9% qoq due to lower FFB processed, higher expenses incurred for estates rehabilitation, manuring and labour recruitment cost.

Revised forecast, maintain HOLD

We have revised our FY18 and FY19 earnings forecast lower to RM23m and RM37m respectively from RM91m and RM142m previously, as we adjust our production, costs and ASP of palm products assumptions. We believe declining ASP of palm products would continue to be a drag on earnings moving forwards. Consequently, we have changed our TP to RM1.60 from RM1.66 previously, based on Price to Book target of 1.1x and FY19 BV/share. Maintain HOLD.

Source: BIMB Securities Research - 29 Aug 2018