• Overview. FGV’s reported a PBT of RM15m in 1Q21 as opposed to LBT of RM163m in 1Q20 mainly due to improved earnings from all sectors – as margins rose owing to better ASP achieved. This was also aided by a share of profit from JV of RM2.17m against RM7.49m loss in 1Q20 and lower admin costs of RM178.7m (+16%), selling and distribution costs, and other operating costs amounting RM33m (+20%) and RM1.5m (+91%) respectively. Nonetheless, the improved earnings were negated by higher FV charged on LLA and FV loss on derivatives amounting RM143.7m (1Q20: RM57.3m) and RM15.1m (1Q20: a gain of RM57.4m) respectively. On qoq basis, the lower profit was due to lower contribution from all sectors. Plantation sector reported a loss of RM50.8m vs. a profit of RM274.7m in 4Q20 on account of lower FFB production and higher FFB purchase costs as well as higher FV charged on LLA of RM143.75m against FV gain of RM87.5m in 4Q20.

• Against estimates: Below. 1Q21 earnings was below our estimates.

• Key Highlights. We are cautiously optimistic on FGV’s plantation sector. We are of the view that FGV may not be able to fetch better margins and to capture fully the rise in CPO price given that 70% of its FFB processed are purchased from third parties.

• Outlook. Although there are several on-going issues that are placing FGV in an unfavourable light, we are positive on FGV’s long-term prospect. FGV’s effort to increase its non-CPO segment by venturing into integrated farming and FMCG segment as well as continuous effort by management focusing on operational excellence and cost efficiency, in our view, would support its turnaround plan.

• Our call. Given the results disappointment, we tweaked our FY21 earnings forecast lower to RM177m from RM216m previously as we revisit our plantation’s margin to better reflect our current and future expectations of FGV’s business operations. Maintain HOLD on the stock with unchanged TP of RM1.30 based on P/B of 1.0x and 3-years average BV/share of RM1.30.

Source: BIMB Securities Research - 31 May 2021