• Overview. FGV’s posted its first PATAMI of RM76m in 4Q19 (>100% yoy/qoq) as a result of better margin in palm products coupled with FV gain in LLA amounting to RM41.6m, lower net impairment losses and recognition in deferred tax of c. RM30m.

• Key highlights. The transformation and key initiatives programme has shown positive operational performance in plantation sector. FFB and CPO production increased 5% and 9% respectively to 4.45m MT and 3.07m MT with mill utilisation factor increased 9% to 74% compared to FY18. In addition, cost rationalization and improved procurement process resulted in savings of c. RM170m surpassed the initial target of RM150m for the full year 2019.

• Against estimates: below. FY19 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.

• Dividend. FGV has recommended a final dividend of 2.0sen for FY19, if approved, translating to DY of 1.7%.

• Outlook. We are positive that FGV is on track to achieve its transformation plan targets. Management guided that they have identified c. RM150m worth of assets to be divested in 2020. In FY19, non-core and non-performing business divestment achieved was RM129m, below its initial target of RM350m planned.

• Our call: HOLD. Given the challenging business environment, we changed our FY20 and FY21 earnings forecast lower to RM10.8m and RM45.9m respectively from RM29.4m and RM59.8m. Hence, we changed TP to RM1.23 (RM1.39 previously) based on target P/B of 0.8x and 5-years average BV/share of RM1.54.

Source: BIMB Securities Research - 2 Mar 2020