Overview. FGV reported a core profit before tax of RM479m in 3Q21 as opposed to RM263m in 3Q20 mainly due to improved earnings from all sectors – as margins rose owing to higher ASP of CPO achieved, improved average sugar selling prices and higher throughput volume for transport and storage segment. Gain/loss in FV on LLA, impairment and unrealised foreign exchange were the key variance versus our core earnings estimates. 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. 9M21 core PBT was above our and consensus’ estimates. Revenue and core PBT increased 33%/>100% respectively to RM13,391m/RM464m mainly attributed to the improvement in all sectors as margins increased significantly on higher ASP realised of CPO, higher gross margin in sugar sector and, higher throughput volume and handling charges for storage segment.

Key Highlights. FGV is committed to becoming a “net-zero” business by 2050 and is Malaysia’s first food and agribusiness company to formalise the commitment by signing the UN-backed Science Based Target Initiative (SBTi) Business Ambition for 1.5oC pledge.

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

Our call. Given the encouraging results, we revised our FY21/22F earnings forecast higher to RM624m/RM323m from RM361m/RM293m previously as we revisit our ASP of palm products, margins, costs and expenses including tax and levy to better reflect our current and future expectations of FGV’s business operations. We revised higher our ASP forecast assumptions for CPO to RM3,600/MT for FY21 and RM3,200/MT for FY22 from RM3,300/MT and RM2,950/MT previously. Maintain HOLD on the stock with new TP of RM1.43 vs. RM1.30 previously based on P/B of 1.1x and 3-yrs avg. BV/share of RM1.30.

Source: BIMB Securities Research - 1 Dec 2021