• The 3rd third largest oil palm estate operator in the world. FGV is the 3rd largest oil palm estate operator in the world, managing more than 330,000ha of oil palm plantation land across Malaysia and Kalimantan, Indonesia. The group is operating under 6 main business clusters, namely: (1) palm upstream; (2) palm downstream; (3) trading, marketing and logistics (TML); (4) sugar, via 51%-owned listed subsidiary MSM; (5) research and development (R&D) and agri-services; and (6) rubber. Currently, it processes circa 15m of FFB a year (of which 1/3 of the FFB came from its own plantation estates, while the remaining came from FELDA settlers and independent suppliers) and more than 3m tonnes of CPO a year from 71 palm oil mills, making it the world’s larges t CPO producer.

• Likely to rerate amid bullish CPO prices. From a 52-week high of RM2.52 (22 Sep), FGV’s s hare prices tumbled 14.3% to end at RM2.16 yes terday. Currently, FGV is trading at 1.25x P/B, which is 34% below its 10-year average 1.91x and 41% below its peers ’ P/B of 2.14x, s upported by 2016 -2018 earnings CAGR of 56%. We believe such huge discounts and ongoing rally in CPO prices are likely to see share prices hitting bottom soon with a technical rebound in the offing.

• Steeply oversold with key supports at RM2.00-2.11. We may witness near term sideways consolidation as hourly and daily RSI and MACD indicators remain in downtrend. However, we see limited downside owing to steeply overs old slow stochastic. Once this pattern ends, we expect prices to breakout to the upside. Key supports are RM2.11 (38.2% FR) and RM2.00 psychological levels. Immediate resistance is RM2.25 (10-h SMA). A decisive breach above RM2.25 will spur prices higher to revisit RM2.35 (200-h SMA) and LT objective at RM2.52 (52-week high). On the flip side, key supports are RM2.11 (38.2% FR) and RM2.00 levels. Cut loss at RM1.99.

Source: Hong Leong Investment Bank Research - 26 Oct 2016