FGV’s 1H22 core net profit of RM795.3m (13.8x) accounted for 61.4-78.6% of our and consensus full-year estimates. We consider the results within our expectation, as we anticipate 2H22 to come in weaker on the back of weaker palm product prices. Declared interim DPS of 4 sen (going ex on 14 Sep 2022). We lower our FY22 core net profit forecast marginally (by 0.4%) mainly to account for lower FFB output assumption (in line with management’s guidance) but partly offset by lower CPO production cost assumption. FY23-24 core net profit forecasts, on the other hand, were raised by 3.1% and 2.8% mainly to account for slightly lower CPO cost assumptions. Post earnings revisions, we maintain our HOLD rating on FGV with a slightly higher TP of RM1.41 (from RM1.37 earlier) based on 15x unchanged FY24 core EPS of 9.4 sen.
Within our expectation. 2Q22 core net profit of RM367.9m (-14.0% QoQ; 7.8x YoY) brought 1H22’s sum to RM795.3m (13.8x YoY), accounting for 61.4-78.6% of our and consensus full-year estimates. We consider the results within our expectation, as we anticipate 2H22 to come in weaker on the back of weaker palm product prices. Core net profit of RM795.3m in 1H22 was arrived after adjusting for (i) RM85.9m revision in LLA assumption, (ii) RM21.7m commodity gains, (iii) RM14.2m impairment loss of financial assets, (iv) RM11.9m unrealised forex gain, (v) RM1.8m PPE written off, (vi) RM16.3m reversal of impairments.
Dividend. Declared interim DPS of 4 sen (going ex on 14 Sep 2022), which is a positive surprise (as FGV had not been paying interim dividend since FY18).
QoQ. 2Q22 core net profit fell by 14.0% to RM367.9m, dragged mainly by higher effective tax rate (36.9% vs 27.9% in previous quarter, on the back of Prosperity Tax) and lower contribution from Logistics and others segment. These were, however, partly mitigated by higher contribution from plantation segment (arising from higher realised average CPO price and a 16.0% increase in FFB output), and slightly lower losses at sugar segment.
YoY. Core net profit surged 13.8x to RM367.9m in 2Q22, boosted mainly by significantly higher realised average palm product prices, but partly moderated by a 9.5% decline in FFB output, losses at sugar segment and partial impact from minimum wage hike.
YTD. 1H22 core net profit surged by 7.8x to RM795.3m, boosted mainly by sharply higher contribution from plantation segment (arising from significantly higher realised palm product prices), improved contribution from logistics and other segment, as well as lower net finance cost. All these were partly moderated by a 0.9% decline in FFB output, higher CPO production cost (arising mainly from sharply higher fertiliser prices and partial impact from minimum wage hike).
Labour shortage to resolve by 1Q23. FGV is currently running short of ~13k workers. Management shared that it had in Jul-22 received 647 foreign workers, and it anticipates to receive another ~7k foreign workers by end-FY22. Given the 12,900 work permits obtained thus far and its aggressive recruitment drive, FGV is hopeful to resolve its labour shortage issue by 1Q23.
FY22 FFB output guided lower. FGV’s FFB output declined by 1.6% to 2.1m tonnes during 7M22, due to crop losses arising from persistent labour shortage. Despite having anticipated an output increase in 2H22 (vs. 1H22), management lowered its FFB output guidance to -3% (from 5-8% earlier), given the low crop output YTD and higher output base in 2H21.
FY22 CPO production cost guidance. Management expects CPO production cost to ease marginally to RM2,000-2,100/tonne in FY22 (from RM2,125/tonne registered in 1H22), as it expects higher manuring expenses (arising from a planned catch up in manuring activities) and minimum wage hike weigh down higher FFB output.
ESG updates. A report by Fair Labour Association (FLA) recently indicated that no non - compliances were identified based on the FLA forced labour benchmark, and FGV is making progress and improvement in its business operations. Besides, we understand that FGV has been periodically engaging with US CBP to share updates on its labour programmes, and it intends to submit the final assessment and remediation reports, together with a petition for WRO modification by end-2022.
Forecast. We lower our FY22 core net profit forecast marginally (by 0.4%) mainly to account for lower FFB output assumption (in line with management’s guidance) but partly offset by lower CPO production cost assumption. FY23-24 core net profit forecasts, on the other hand, were raised by 3.1% and 2.8% mainly to account for slightly lower CPO cost assumptions.
Maintain HOLD with slightly higher TP of RM1.41. Post earnings revisions, we maintain our HOLD rating on FGV with a slightly higher TP of RM1.41 (from RM1.37 earlier) based on 15x unchanged FY24 core EPS of 9.4 sen.
Source: Hong Leong Investment Bank Research - 1 Sept 2022
Chart | Stock Name | Last | Change | Volume |
---|