FGV’s 1Q17 revenue increased by 15% yoy to RM4.32bn and reported core net profit of RM67.2m. Despite 1Q17 earnings being within our expectation, we have cut our 2017-19E forecasts by 9-31% to account for lower contribution from sugar business and lower FFB growth production assumption. We revised our TP on FGV to RM1.87 after taking into account our new forecast and as we roll forward our valuation basis to 2018E. Maintain HOLD rating.

Sugar Segment Turn Loss Making in 1Q17

Felda Global Ventures’ (FGV) 1Q17 revenue increased by 15.1% yoy to RM4.32bn. This was mainly due to higher contribution across all divisions, with plantation, sugar and LO (Logistics & Others) divisions revenue rising by 11.4%, 17.3% and 52.6% yoy, respectively to RM3.27bn, RM0.65bn, and RM0.4bn. For 1Q17, FGV reported a loss before zakat and taxation of RM31.3m, improving from a loss of RM81.8m in 1Q16. Plantation sector recorded a lower loss of RM0.9m vs. loss of RM82.2m in 1Q16 due to higher CPO ASP at RM3,061/MT vs. RM2,303/MT in 1Q16 and an increase in FFB production by 3% yoy, but eroded by impairment of receivables, provision for litigation loss and lower gain in forex. The LO sector improved to a profit of RM9.8m from a loss of RM11.3m in 1Q17 due to higher tonnage carried by FGV’s transport operation. Meanwhile, sugar sector in 1Q17 recorded a loss of RM23.2m compared to a profit of RM61.6m in 1Q16 due to higher raw material cost and weakening of MYR.

FGV Posted Core Net Profit of RM67.2m

After excluding impairments, provision for litigation loss, forex gain and other one-off items, FGV recorded a core net profit of RM67.2m in 1Q17 from a core net loss of RM79m in 1Q16. This was within expectation accounting for 22% of our previous 2017E forecasts.

Maintain HOLD With a New TP of RM1.87

Despite 1Q17 earnings being within our expectation, we have cut our 2017-19E core EPS forecasts by 9-31% mainly to account for lower 2017- 19E earnings contribution from the sugar business (mainly from MSM) and lower 2018-19E FFB growth production assumption. We have revised our target price on FGV to RM1.87 after taking into account our new forecast and as we roll forward our valuation basis to 2018E (based on an unchanged 22x PER). We maintain our HOLD rating.

Key Risks

Key risks to our HOLD rating include: (1) stronger/weaker-than-expected recovery in the global economy; 2) higher/lower vegetable oil and crude oil prices; 3) stronger/weaker-than-expected FFB and CPO production; and 4) changes in policies.

Source: Affin Hwang Research - 1 Jun 2017