• Overview. FGV posted PATAMI of RM136.9m in 3Q20 (>100% yoy/qoq) on the back of 12%/21% increase in revenue to RM3,989.5m – attributed to Plantation sector as CPO margin improved in tandem with higher ASP realised of CPO and PK, and increase in FFB and CPO production (Table 2 and 3).

• Key highlights. FGV’s venture into Integrated farming and FMCG are on track where its new fresh milk factory with capacity of 30k litres/day is scheduled for completion in 1H FY21. FGV also has commenced the planting of 28ha of MRQ76 fragrant rice seeds gardens in Sungai Leman, Selangor and Seberang Perak, Perak scheduled to be harvested by January 2021.

• Against estimates: Above. 9M20 core profit was above our and consensus’ estimates. Although CPO sales volume decreased by 5.2% in tandem with lower FFB production, profitability was significantly higher than in previous year. FGV reported PBT of RM27.4m against a loss of RM396m in 9M19 mainly due to higher profit from Plantation sector, aided by higher profit in Logistic and Other sector, and lower losses incurred in Sugar sector. Higher profit in plantation sector was due to higher CPO price realised and lower FV charge of LLA of RM256.95m against RM278.44m in 9M19.

• Outlook. We are positive on FGV’s effort to increase its non-CPO segment by venturing into integrated farming and FMCG and has been granted a rice wholesale license from Ministry of Agriculture and Food Industries in June 20.

• Our call: HOLD. Given the improved results, we revised our FY20/21 earnings forecast higher to RM32.1m/RM57.8m respectively from a loss of RM98m and a profit of RM27m previously (assuming FGV current status remain)– as we believe that the higher contribution from plantation segment would mitigate the negative impact from sugar business and downstream segment. Coupled with the continuous effort by management focusing on operational excellence and cost efficiency, this in our view, would make our earnings target justifiable. Maintain HOLD with new TP of RM1.17 (RM1.04 previously) based on P/B of 0.9x and 3- years average BV/share of RM1.30.

Source: BIMB Securities Research - 18 Nov 2020