FY22 core net profit of RM1.45bn (2.6x) beat expectations, accounting for 113.3- 122.5% of our and consensus estimates, due mainly to better-than-expected FFB output. Declared final DPS of 11 sen (going ex on 29 Mar 2023), bringing total DPS for FY22 to 15 sen. All in, we raise our FY23-24 core net profit forecasts by 8.1% and 11.1%, mainly to account for higher FFB output assumptions. Post earnings revision, we maintain our HOLD rating on FGV with a higher TP of RM1.54.

Beat expectations. 4Q22 core net profit of RM406.1m (+62.3% QoQ; +32.7% YoY) brought FY22 total sum to RM1.45bn (2.6x). The results beat expectations, accounting for 113.3-122.5% of our and consensus estimates, due mainly to better-than-expected FFB output.

Exceptional items (EIs) in FY22. Core net profit of RM1.45bn was arrived after adjusting for (i) RM37.1m revision in LLA assumption, (ii) RM39.7m commodity loss, (iii) RM72.9m impairment and/or write-off, (iv) RM19.5m unrealised forex gain, (v) RM40m disposal gain.

Dividend. Declared final DPS of 11 sen (going ex on 29 Mar 2023), bringing total DPS for FY22 to 15 sen.

QoQ. 4Q22 core net profit rose by 62.3% to RM406.1m, boosted by (i) higher sales volume and lower CPO production cost, but partly moderated by lower realised palm product prices at plantation segment, and (ii) narrower losses at sugar segment (51%-owned MSM).

YoY. 4Q22 rose by 32.7% to RM406.1m, aided mainly by higher realised CPO price (+5.7%) and a 7.3% increase in FFB output, but partly weighed down by higher CPO production cost at plantation segment and higher losses at sugar segment (arising from higher raw sugar and natural gas prices, as well as a weaker RM).

YTD. FY22 core net profit surged 2.6x to RM1.45bn, boosted mainly by higher realised palm product prices and higher earnings contribution from process of external FFB as well as logistics and other segment, which more than mitigated higher CPO production cost and losses at sugar segment.

10-15% FFB output growth in FY23. FGV recorded FFB output of 1.13m tonnes (+7.3% YoY, as it managed to reduce shortage of foreign workers to 13% in FY22 from 32% in FY21) and this brought FY22 output to 3.99m tonnes (+0.4%). Management guided FFB output growth of 10-15% in FY23, supported by the arrival of another 5,000 new estate workers by 2Q23 and more areas moving to higher yield bracket.

CPO production cost to increase further in FY23. Management expects CPO production cost to increase by another 5% in FY23, as it envisions higher production cost to be offset by higher fertiliser application (as fertiliser application fell short in FY22) and full impact from minimum wage hike.

To reimburse recruitment fees to foreign workers. FGV shared that it will reimburse its current and former foreign workers (which were employed after 27 Jun 2019 and had to pay recruitment fees to agents or other third parties in their countries of origin) amounting to ~RM110m in 3 tranches (between Mar and Sep 2023).

To submit final report to USCBP by end-1Q23. FGV’s independent assessor (ELEVATE) has completed its site assessment and FGV will put its recommendations into action and anticipates to submit the final report to US Customs and Border Protection (USCBP) by end-1Q23.

Forecast. All in, we raise our FY23-24 core net profit forecasts by 8.1% and 11.1%, mainly to account for higher FFB output assumptions.

Maintain HOLD, with higher TP of RM1.54. Post earnings revision, we maintain our HOLD rating on FGV with a higher TP of RM1.54 (from RM1.49 earlier).

Source: Hong Leong Investment Bank Research - 28 Feb 2023