• Overview. FGV’s LBZT narrowed to RM363m in 3Q19 mainly due to lower impairment losses recognised as compared to 3Q18 of RM797m (3Q19: RM131m). On qoq basis, core loss was higher resulting from losses in sugar sector, recognition of impairment on loan to JV (Trurich) amounting to RM125m in plantation sector, as well as impairment of PPE of RM145m in sugar sector.

• Key highlights. 3Q19 saw revenue increased by 11% yoy as operational performance improved significantly on higher yields and lower costs. FFB and CPO production increased 15% and 21% respectively to 1.24m MT and 0.83m MT, whilst cos ex-mill improved 19% to RM1,500/MT from RM1,852/MT in 3Q18 (Table 3).

• Against estimates: below. 9M19 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. Nonetheless, judging by its YTD2019 performance (see Table 3), FGV is likely to achieve its targets as laid out in its transformation plan.

• Our call: HOLD. We optimistic on FGV transformation plan and, hence, maintain our FY20 and FY21 earnings forecast with new TP of RM1.23 (RM0.96 previously) based on target P/B of 0.8x and 5-years average BV/share of RM1.54. We have also revised our FY19 earnings forecast sharply lower to a loss of RM436.4m from a loss of RM12.6m previously, as we adjusted higher our loss assumption in sugar business, depreciation and finance costs assumptions.

Source: BIMB Securities Research - 29 Nov 2019