• Overview. FGV Holdings (FGV) reported a 12% drop in 4Q22 core PBT on the back of a 1% decline in revenue no thanks to 1) losses in sugar segment, 2) lower profit from Upstream palm segment as a result of higher CPO cost-ex mill of RM2,196/MT (-14%) due to an increase in manuring, upkeep and maintenance costs, 3) losses in rubber division due to lower average selling price (ASP) and production volume, and 4) decline in share of results from associate amounting to RM1.5mn (-41% YoY). On a QoQ basis, core PBT grew by 58% mainly attributed to higher profit contribution from Plantation segment and reduced losses from sugar sector. Note that margins from Upstream and Downstream divisions increased to 13% and 6% respectively in 4Q22 from 12% and 2% in 3Q22 to RM506mn and RM80mn respectively.

• Key Highlights. As a commitment to sustainability agenda, FGV will reimburse the recruitment fees in three tranches to its current 23,333 foreign workers amounting to RM81.64mn beginning March 2023. Note that FGV’s foreign labour shortage has reduced to 13% in FY22 from 32% in FY21.

• Against estimates: Inline. Overall, the results were within our estimate, with core PATAMI of RM1.2bn (+46% YoY) making up 108% of our full year forecast. Higher throughput and tonnage carried by the logistics sector and an increase in palm products margin following higher ASP of CPO realised and sales volume has partly negated the losses incurred in the sugar sector. The variances between reported earnings and core earnings are the gain and/or loss in fair value (FV) change on LLA, impairment, unrealised foreign exchange, minority interest and the effective tax rate.

• Dividend. The Board declared a final DPS of 11.0sen for FY22, bringing total DPS payable for the year to 15.0sen (FY21: 8.0sen). At the current market price, this translates into a yield of 10.3%.

• Outlook. We are positive on FGV’s long-term prospect given their continuous commitments on operational excellence and cost efficiency that can turn around the Group.

• Our call. Maintain a HOLD call with a TP of RM1.50 based on P/BV of 0.81x and BV/share of RM1.85.

Source: BIMB Securities Research - 28 Feb 2023