Back in the red

FGV posted a below-expectation 9M16 core net loss of RM128m, attributable to the lower FFB and CPO production, higher fair value charge on LLA, higher raw sugar costs, lower earnings from the downstream division, lower-than-expected contribution from the plantation division as well as losses incurred by the jointly controlled entity. We now forecast a loss for 2016 (previously a profit) and have cut our 2017-18 core EPS forecasts by 22%, given the weak set of results. As such, our target price on FGV is now lower at RM1.10. Maintain SELL.

Back to loss-making in 3Q16

Sequentially, FGV’s 3Q16 revenue increased slightly by 1.3% qoq to RM4.2bn. This was mainly due to higher contribution from the sugar and TMLO (Trading, Marketing, Logistics & Others) divisions, which saw revenue rising by 0.3% and 10.4% qoq, respectively, although this was partially offset by lower revenue from the plantation upstream and downstream divisions of 5.4% and 13.5% qoq, respectively. The CPO ASP was lower at RM2,479/MT vs. RM2,570/MT in 2Q16. Despite posting a higher revenue in 3Q16, FGV recorded a core net loss of RM126.9m as compared to a core net profit of RM73.3m in 2Q16. No interim dividend has been declared for the quarter.

9M16 core net loss of RM128m

FGV’s 9M16 revenue was 5.9% higher yoy at RM12.1bn; however PBT plunged 93% yoy to RM15.3m largely due to the lower FFB and CPO production, higher fair value charge on LLA, higher raw sugar costs, lower earnings from the downstream division, lower-than-expected contribution from the plantation division, and losses incurred by the jointly controlled entity. The group posted a core net loss of RM128.1m in 9M16, even lower than the core net loss of RM112.5m in 9M15.

TP lowered to RM1.10, maintain SELL

Given the weaker-than-expected 9M16 performance, we now forecast a loss for 2016 (previously a profit) and cut our 2017-18 core EPS forecasts by 22% after adjusting for: 1) 5-7% lower FFB production assumptions for 2016-18E; 2) 2-7% higher cost of production to RM1,450/MT-RM1,600/MT for 2016-18E; and 3) our lower forecasts for MSM (MSM MK, RM4.90, SELL). As such, our target price for FGV is now lower at RM1.10 (from RM1.41 previously). This is based on an unchanged 15x PER on our 2017E EPS. Maintain SELL call on FGV

Source: Affin Hwang Research - 23 Nov 2016