• Overview. FGV recorded a core loss of RM3.5m in 2Q19 mainly due to losses in sugar and plantation sector. On qoq basis, core loss was narrower on flat revenue as weakness in ASP of palm product coupled with lower sales volume from both sectors negated the benefits from cost management implemented.

• Key highlights. 2Q19 saw both sectors, plantation and sugar business incurred a loss of RM54m and RM53m respectively. Higher loss in plantation sector was due to lower palm oil margins as CPO and PK price dropped 19% and 39% respectively to RM1,955/MT and RM1,063/MT. Whereas, loss in sugar sector was due to higher depreciation and finance cost with the commercialization of MSM refinery in Johor.

• Against estimates: below. 1H19 core profit was below our and consensus’ estimates mainly affected by the impact of weaker ASP realized of palm products and losses incurred in Sugar sector.

• Outlook. Although FGV is on track to meet its transformation plan, we believe there will be persistent margin pressure and possibility of further impairment in future.

• Our call. Maintain HOLD with new TP of RM0.96 (RM1.13 previously) based on target P/B of 0.8x and FY20 BV/share. We have revised our FY19 and FY20 earnings forecast lower to a loss of RM12.6m and profit of RM10.7m respectively from RM18.4m and RM33.6m previously, as we adjusted our cost, share of results from associate and JV, and ASP realised of palm products assumptions by an average -16%.

Source: BIMB Securities Research - 29 Aug 2019