• Upgrade to HOLD (TP: RM1.30). FGV Holdings (FGV) recorded a 1HFY24 core PBT of RM154mn compared to a loss of RM40mn in 1HFY23, primarily due to better performance across all division. PBT from the Plantation division improved significantly to RM38.4mn from a loss of RM3.3mn in 1H23. This was due to 1) higher FFB processed, stemming from a 6% YoY increased in FFB production to 1.7mn MT, 2) higher FFB yield of 6.64 MT (+10% YoY) and OER of 20.53% (1H23: 20.30%), 3) stable average CPO prices realized at RM4,020/MT (+1% YoY), and 4) lower CPO cost ex-mill by -5% YoY. Overall, FGV's Core PBT were above both our and consensus full year forecast. We revised higher our FY24-25F earnings forecast higher to RM159.6mn and RM171.1mn respectively, as we revisit our margin assumptions on better production costs and housekeeping adjustments. Upgrade to HOLD call with a higher TP of RM1.30; based on FY25F BV/share of RM1.67 and hist. low 3- yrs avg. P/BV of 0.78x.

• Key Highlights. FGV’s 2QFY24 core PBT improved to RM96mn (+63% QoQ, > 100% YoY), thanks to the higher profit contribution from Plantation and Logistics & Support division, which partially offset the weaker performance from the Sugar and Oil & Fats division. The Plantations division benefited from higher FFB yield, improved CPO realized selling prices, and lower estate cost resulted from higher productivity (refer to Table 2). Sales volume and margins for fertilizer products also increased by 26% YoY and 32% YoY respectively. Conversely, the weaker performance from Sugar division was mostly due to increased production costs, while the Oils & Fats division experienced a drop in margin due to intense competition.

• Earnings Revision. We raised our FY24/25 earnings forecasts to RM159.6mn and RM171.1mn respectively, from RM65.9mn and RM74.5mn previously, after factoring in lower production costs and housekeeping adjustments.

• Outlook. Management is optimistic that FFB production will grow by 10%- 15% this year to 4.0mn-4.2mn tonnes in FY24, with a peak month expected during the Sep-Oct period, supported by improved yield, and easing labour shortages. Additionally, production cost expected ease on the back of lower fertilizer prices. However, there a downside risk of lower-than-expected ASP of palm products and lower margin from Oil & Fats segment.

Source: BIMB Securities Research - 28 Aug 2024