• FGV recorded a loss after tax and minority interest of RM1.08bn in FY18 on revenue of RM13.47bn (-20% yoy) largely due to weak plantation sector and impairment losses of RM909m.

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

• Loss in 4Q18 was narrower at RM208.8m vs. RM849.3m in 3Q18 on account of lower FV changes in LLA, lower impairment loss and higher share of result from JV of RM52.1m vs. loss of RM61.5m in 3Q18.

• We maintain our earnings forecast for FY19 and FY20 with revised TP of RM1.13 (RM0.90 previously). Maintain HOLD.

Hits by lower ASP of palm products

Adjusted for FV in LLA and EI, FGV posted a loss after tax and minority interest of RM271.7m vs. RM85.2m profit in FY17. The weak result was due to: 1) decrease in plantation margin due to lower ASP realised of CPO and higher CPO production costs by 8.5% (Table 3); 2) declining margin in kernel crushing and refining business as well as lower volume and margin in planting materials; 3) share of loss from joint ventures and associates amounting to RM41; and 4) 10% increase in finance costs to RM135m. 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).

Improved qoq results

On quarterly basis, the Group posted a loss before tax of RM139.3m vs a loss of RM911.1m in 3Q18 as a result of better margin from kernel crushing and refining business. This was also aided by the improvement in the share of results from JV of RM52.1m on the back of insurance claim received from Frlda Iffco Gida Sanayi amounting to c. RM62m. Lower FV charge in LLA of RM24.1m vs. RM102.3m in 3Q18 and lower impairment loss of RM110.5m during the quarter (3Q18: RM789m loss) also help to narrow down the loss.

Maintain forecast with new TP of RM1.13

We maintain our earnings forecast for FY19 and FY20 to RM18.4m and RM35.7m respectively although we believe there will be persistent margin pressure and possibility of further impairment in future. We retain our HOLD recommendation on FGV and peg our TP to RM1.13 from RM0.90 previously, based on historical low 3-yrs average P/B of 0.9x and FY19 BV/share. Maintain HOLD.

Source: BIMB Securities Research - 1 Mar 2019