FGV’s FY21 core net profit of RM549.m (5.1x) beat our expectation, accounting for 146.3% of our estimate, due mainly to higher-than-expected realised palm product prices. Declared final DPS of 8 sen (going ex on 15 Mar 2022). We raise our FY22-23 core net profit by 258.5% and 221.3%, mainly to reflect higher CPO price but partially offset by fertiliser cost at plantation segment (in line with the recent upward revision in our sector-wide CPO price assumptions). Post switching of valuation methodology and earnings revisions, we upgrade our rating on FGV to BUY (from Hold earlier), with a higher TP of RM2.43 (from RM1.55 earlier) based on 15x FY23 core EPS of 16.2 sen.

Better-than-expected. 4Q21 core net profit of RM306.1m (QoQ: +64.4%; YoY: 2.2x) took FY21 sum to RM549.7m (5.1x). The results beat our expectation, accounting for 146.3% of our estimate, due mainly to higher-than-expected realised palm product prices. Against consensus, the results missed estimates marginally, accounting for 94.1% of full year forecast.

Exceptional items (EIs) in FY21. FY21 core net profit of RM549.7m was arrived after adjusting for (i) RM466.4m revision in LLA assumptions, (ii) RM85.0m commodity gains, (iii) RM5.8m impairment on financial assets, (iv) RM6.5m unrealised forex gain, (v) RM8.8m PPE written off, (vi) RM60.3m impairment loss on PPE, (vii) RM0.3m impairment loss on right-of-use assets, (viii) RM91.8m disposal gain, and (ix) RM43.2m gain on liquidation of excess raw sugar hedges.

Dividend. Declared final DPS of 8 sen (going ex on 15 Mar 2022).

QoQ. Core net profit increased by 64.4% to RM306.1m in 4Q21, boosted mainly by a 10.4% increase in realised average CPO price (to RM4,194/mt), higher contribution from logistics and other segment, and lower net finance cost. These were however partly moderated by a 6.0% decline in FFB output and losses at sugar segment.

YoY. Core net profit more than doubled to RM306.1m in 4Q21 (from RM134.9m SPLY), boosted mainly by higher realised palm product prices and improved earnings contribution from logistics & other segment, but partly weighed down by losses at sugar segment.

YTD. FY21 core net profit surged by 5.1x to RM549.7m, as all segments reported improved earnings. During FY21, PBZT at plantation segment surged by 4.8x to RM1.7bn, as the 7.3% decline in FFB output was more than mitigated by 37.2-82.5% increases in realised palm product prices (CPO: RM3,671/mt; PK: RM2,844/mt).

Forecast. We raise our FY22-23 core net profit by 258.5% and 221.3%, mainly to reflect higher CPO price but partially offset by fertiliser cost at plantation segment (in line with the recent upward revision in our sector-wide CPO price assumptions). We take this opportunity to introduce our FY24 core net profit forecast. Our CPO price assumptions are now RM4,300/mt for FY22, and RM3,300/mt for FY23-24.

TP raised to RM2.43; upgrade to BUY. We switch our valuation methodology on FGV to P/E (from EV/ha earlier), as we believe the former better reflects FGV’s financial performance amidst current high CPO price environment. Post switching of valuation methodology and earnings revisions, we upgrade our rating on FGV to BUY (from Hold earlier), with a higher TP of RM2.43 (from RM1.55 earlier) based on 15x FY23 core EPS of 16.2 sen (at lower end of our P/E target range for mid-sized plantation players given its volatile historical earnings track record).

Source: Hong Leong Investment Bank Research - 1 Mar 2022