Results

• FY17 core net profit of RM108.7m (vs. core net loss of RM153.1m in FY16) came in within our expectation, accounting for 104.1% of our forecast. The results accounted for 94.9% of consensus estimates.

Deviations

• Broadly in line.

Dividend

• None for the quarter.

• QoQ… 4Q17 core net profit declined by 10.6% to RM60.6m, as better performance at plantation and sugar divisions, coupled with lower finance costs were more than offset by higher administrative expenses and higher cash payment to LLA liability.

• YoY… 4Q17 core net profit increased by nearly 5x to RM60.6m (from RM10.2m a year ago), mainly due to improved performance at all divisions, which more than mitigated weaker associate and JV performances .

• YTD… Despite the weak performance at sugar division (arising from high raw sugar price and weaker MYR), FY17 performance turned around with a core net profit of RM108.7m (from a core net loss of RM153.1m a year ago), mainly on the back of better performance at plantation and logistics and others divisions.

• FFB production to hit 5.3m tonnes by FY20… FFB output grew by 8.9% to 4.26m tonnes in FY17 (in line with management’s guidance of 4.3m tonnes), guiding FFB output to grow 13% to 4.85m tonnes, as labour shortage issue eases and more areas are moving into mature brackets. Management guided that FFB production will continue to increase for the next 3 years (to 4.85m tonnes in FY18, 5m tonnes in FY19 and 5.3m tonnes in FY19), mainly on the back of improving age profile from its aggressive replanting activities in the past.

Risks - Downside

• Slower-than-expected earnings recovery, hampering investors’ confidence towards FGV;

• Escalating production cost (in particularly labour costs); and

• Lower-than-expected FFB yield and OER.

Forecasts

• FY18-19 core net profit forecasts raised by 32.1% and 32.8% respectively, largely to account for lower CPO production cost assumptions.

Rating

HOLD ( ↔ )

• The ongoing transformation plan (which includes downsizing staff force, embarking on aggressive replanting exercise, and tightening supervision of plantation operations) seems to have started bearing fruits (witnessed by sharp improvement since 3Q17 results). We believe a re-rating catalyst is warranted should the good earnings performance sustain into the next few quarters.

Valuation

• Post earnings adjustment, SOP-derived TP on the stock is raised by 12.3% to RM2.01 (see Figure 5).

Source: Hong Leong Investment Bank Research - 26 Feb 2018