FGV’s core net profit of RM106.8m (vs. core net loss of -RM123.6m SPLY) beat our expectation, accounting 115% of our estimate, due mainly to better-than expected performance at sugar segment. Declared final DPS of 3 sen for FY20 (ex-date: 17 Mar 2021). We raise our FY21-22 core net profit forecasts by 25.5% and 21.9%, respectively, mainly to account for higher earnings assumptions at sugar segment. Despite the upward revision in our core net profit forecasts, we maintain our sum-of-parts derived TP of RM1.39, as our valuation on FGV is primarily made up of its plantation land bank (which in turn is valued based on EV of RM22k/ha). Downgrade to HOLD (from Buy earlier), given limited potential upside (following its MO offer at RM1.30/share since 6 Dec 2020).

Above our expectation, but below consensus. 4Q20 core net profit of RM138.1m (QoQ: -27.0%; YoY: >100%) took FY20 core net profit to RM106.8m (vs. core net loss of -RM123.6m SPLY). The results beat our expectation, accounting for 115% of our estimate, due mainly to better-than-expected performance at sugar segment. Against the consensus, the results disappointed, accounting for 88% of estimate.

Exceptional items (EIs) in FY20. Core net profit of RM106.8m was arrived after adjusting for (i) RM230.5m revision on LLA assumption, (ii) RM41.1m commodity gain, (iii) RM9.3m reversal of impairment on financial assets, (iv) RM0.1m unrealised forex loss, (v) RM69.7m PPE written off, (vi) RM275.6m impairment loss and write off, and (vi) RM38.1m disposal gain.

Dividend. Declared final DPS of 3 sen for FY20 (ex-date: 17 Mar 2021).

QoQ. 4Q20 core net profit fell 27.0% to RM138.1m, dragged mainly by lower FFB output (-22.6%), but partly mitigated by higher palm product prices (CPO: +15.7%; PK: +35.7%), turnaround at sugar segment and lower net finance cost.

YoY. 4Q20 core net profit turned around with a core net profit of RM138.1m (from - RM18.6m SPLY), boosted mainly by sharply higher realised palm product prices (CPO: +41.7%; PK: +46.6%), and turnaround at sugar segment (arising from higher export sales volume, lower sugar cost, higher utilisation factor and lower refining cost).

YTD. FY20 performance turned around with a core net profit of RM106.8m (from a core net loss of -RM123.6m last year), due mainly to (i) sharply higher realised palm product prices (CPO: +32.14%; PK: +32.7%), (ii) turnaround at sugar segment in 4Q, (iii) improved contribution from logistics segment (as a result of lower operating cost), and (iv) lower finance cost. All these more than mitigated a 3.6% decline in FFB output.

Outlook. We remain positive on FGV’s near-term earnings prospects (particularly into 1H21), underpinned by high palm product prices (management expects CPO price to sustain at above RM3,000/mt into 2Q21), and sustained turnaround at sugar segment (arising from higher production volume, low raw sugar cost, and declining sugar refining cost), which will more than mitigate weak near-term FFB production. Despite having guided weak near-term FFB output (due to labour shortage), management is still guiding FFB output for FY21 to grow by 3-5% in FY21, as it expects labour shortage to start easing from 2H21 onwards.

Forecast. We raise our FY21-22 core net profit forecasts by 25.5% and 21.9%, respectively, mainly to account for higher earnings assumptions at sugar segment.

Maintain TP of RM1.39; downgrade to HOLD. Despite the upward revision in our core net profit forecasts, we maintain our sum-of-parts derived TP of RM1.39 (see Figure #3), as our valuation on FGV is primarily made up of its plantation land bank (which in turn is valued based on EV of RM22k/ha). Downgrade to HOLD (from Buy earlier), given limited potential upside (following its MO offer at RM1.30/share since 6 Dec 2020).

Source: Hong Leong Investment Bank Research - 8 Mar 2021