Overview. FGV reported a core profit before tax of RM282m in 2Q21 as opposed to RM30m in 2Q20 mainly due to improved earnings from all sectors – as margins rose owing to higher ASP achieved. This was also aided by a share of profit from associate of RM0.95m against RM0.19m loss in 2Q20 as well as lower selling and distribution, and other operating expenses amounting RM39.6m (+4.1%) and RM13.2m (51.1%) respectively. Gain/loss in FV on LLA, impairment and unrealised foreign exchange were the variance in our core earnings. On qoq basis, the higher profit was due to improved operational performance led by the higher ASP realised of CPO, higher FFB and CPO production, and improvement in Sugar and Logistic business.

Against estimates: Above. 1H21 core PBT was above our estimates. Revenue and core PBT increased 33%/>100% respectively to RM8,075m and RM307m mainly attributed from the improvement in all sectors as margins increased significantly on higher ASP realised during the period.

Key Highlights. In order for FGV to release the Withhold Release Order and to meet CBP’s expectations of a credible audit, FGV with the support of its US-based legal counsel are currently reviewing 9 proposals from potential audit firms. This appointment is expected to be finalised in Sep 2021, following which the audit work will begin.

Outlook. We are positive on FGV’s long-term prospect given the continuous effort by management focusing on operational excellence and cost efficiency, in our view, would support its turnaround plan.

Our call. Given the encouraging results, we revised our FY21/22F earnings forecast higher to RM361m/RM293m from RM177m/RM203m previously as we revisit our ASP of palm products, productions and margin to better reflect our current and future expectations of FGV’s business operations. We revised higher our ASP forecast for CPO to RM3,300/MT for FY21 and RM2,950/MT for FY22 from RM2,900/MT and RM2,700/MT previously; whilst cutting our production number by 8% to 4.12m and 4.32m tonnes respectively for FY21/22. 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 - 1 Sept 2021