• FGV recorded a PBT of RM23.4m in 1Q19 (-9% yoy) on revenue of RM3.28bn largely due to plantation segment but partially offset by lower ASP of CPO and weak sugar business as well as provision of separation scheme amounting RM27m.

• Loss in share of results from associates and JV, higher administrative expenses and higher FV changes in LLA liability also aided to the lower results.

• On quarterly basis, PBT was higher by >100% on account of 1.4% increase in revenue mainly due to higher profit contribution from plantation sector that partially offset by the loss in sugar and Logistics sector.

• We believe FGV is on track to its turnaround plan and, hence, maintain our earnings forecast for FY19 and FY20 with an unchanged TP of RM1.13. Maintain HOLD.

Results below expectations

FGV’s recorded a PBT of RM23.4m in 1Q19 against RM25.9m in 4Q18. The decline in PBT was mainly due to 1) lower revenue on lower average CPO price realised, 2) loss in Sugar business, 3) higher FV charged in LLA of RM86m (1Q18: RM78m), and 4) provision of separation scheme amounting RM27m and provision for closure of KS Jerangau Baru of RM12m. A decrease in average selling price of sugar to RM2,157/MT against RM2,443/MT in 1Q18 and higher refining costs of RM362/MT (+12% yoy) contributed to the disappointing sugar segment’s results. Nonetheless, this was negated by higher profit in plantation sector of RM39.8m vs. RM19.5m in 1Q18 mainly due to increased contribution from downstream segment as higher margin was achieved in kernel crushing and fatty acid business. Improvement in plantation sector also resulted from the reversal of impairment of RM64m due to settlement received from customers.

Quarter performance

On quarterly basis, PBT was higher by >100% qoq on account of 1.4% increase in revenue mainly due to higher profit contribution from plantation sector that partially offset the loss in sugar and logistics sector. Plantation sector recorded a profit of RM39.8m in 1Q19 compared to a loss of RM110.4m in 4Q18 largely due to higher impairment of RM110.5m recognised in 4Q18. There was also a reversal in impairment of RM64m in relation to MFRS 9 in 1Q19 due to settlement received from customers.

Maintain forecast with TP of RM1.13

No change in our earnings forecast for FY19 and FY20. We retain our HOLD recommendation on FGV and peg our TP to RM1.13, based on historical low 3-yrs average P/B of 0.9x and FY19 BV/share. Maintain HOLD.

Source: BIMB Securities Research - 30 May 2019