Adjusted for FV in LLA and EI, FGV posted a loss before tax of RM168m vs. RM226m profit in 9M18. The weak result was due to: 1) decrease in plantation margin due to lower ASP realised of CPO and higher CPO production costs by 10% (Table 3); 2) losses suffered in kernel business; and 3) share of loss from joint ventures and associates mainly due to losses incurred in Trurich Resources. However, the lower result was partially offset by improvement in sugar business profit due to lower raw sugar costs and favourable foreign exchange rate. (Table 2).
On quarterly basis, the Group posted a loss before tax of RM911m vs a profit of RM27.5m in 2Q18 as a result of lower average CPO price of RM2,224/MT (2Q18: RM2,419/MT), higher share of loss from JV of RM61m and higher FV charge in LLA of RM102m. Impairment of intangible assets, PPE, receivables and amount due from JV amounting to RM788m aided to the bigger loss incurred during the period.
We believe declining ASP of palm products would continue to be a drag on earnings moving forwards. As such, we have revised our FY18 and FY19 earnings forecast lower to a loss of RM991m and profit of RM18m respectively from RM23m and RM37m previously, as we adjust our production, costs and ASP of palm products assumptions. Consequently, we have changed our TP to RM0.90 from RM1.60 previously, based on Price to Book target of 0.7x and FY19 BV/share. Maintain HOLD.
Source: BIMB Securities Research - 29 Nov 2018
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