• FGV recorded a 9M18 net loss of RM871m in 9M18 on revenue of RM10.2bn (-19% yoy) largely due to weak plantation sector as well as impairment losses amounting to RM798m.

• Loss in share of results from associates and JV, higher finance costs and other operating expenses aided to the disappointing results.

• Quarter 3Q18 saw a bigger loss at RM849m vs. RM23m loss in 2Q18 on lower revenue and lower contribution from all segments, including associates and JV.

• We revised our earnings forecast lower for FY18 and FY19 to a loss of RM991m and profit of RM18m respectively from RM23m and RM37m previously with new TP of RM0.90 (RM1.60 previously). Maintain HOLD.

Results below expectations

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).

Impairment loss dragged 3Q18 result even lower

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.

Revised forecast, maintain HOLD

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