FGV’s 1H17 revenue rose by 8.3% yoy to RM8.55bn, leading to a core net profit of RM120.1m (1H16: -RM8.2m). Given that 1H17 earnings are below our expectations, we cut our 2017-19E EPS by 15-20% to build in the lower contribution from the sugar business and our higher CPO production-cost assumptions. Hence, we lower our TP on FGV to RM1.60 after taking into account our new forecasts. Maintain HOLD.

Sugar Segment Still Loss Making

Felda Global Ventures’s (FGV) 1H17 revenue rose 8.3% yoy to RM8.55bn. This was mainly due to higher contribution across all divisions, with plantation, sugar and LO (Logistics & Others) divisions revenue rising yoy by 3.8%, 13% and 50.6%, respectively, to RM6.42bn, RM1.34bn, and RM0.78bn. For 1H17, FGV reported an increase in PBT to RM56m, up 34.8% yoy. The plantation segment posted a PBT of RM148m, vs. a pretax loss of RM9.7m in 1H16 due to higher CPO ASPs at RM2,916/MT, vs. RM2,446/MT in 1H16 and a rise in CPO production by 12% yoy to 1.28m MT but eroded by impairment of receivables and provision for litigation loss. The LO sector improved to a profit of RM5.4m vs. a loss of RM6m in 1H16 due to higher throughput and tonnage carried by FGV’s transport operation. Meanwhile, the sugar segment in 1H17 had a loss of RM41.6m, compared to a profit of RM99.2m in 1H16 due to higher raw material costs and a weaker RM despite improved ASPs and higher domestic sales volumes.

1H17 FGV Posted Core Net Profit of RM120.1m

After excluding impairments, provisions for litigation loss, forex gains and other one-off items, FGV recorded a core net profit of RM120.1m in 1H17, from a core net loss of RM8.2m in 1H16. This was below our expectations, accounting for 43% of our previous 2017E forecasts. The variance was mainly due to the loss-making sugar division.

Maintain HOLD Rating With a Lower TP of RM1.60

Given that 1H17 earnings fell below our expectations, we cut our 2017-19E core EPS by 15-20% mainly to account for a lower earnings contribution from the sugar business (mainly from MSM) and our higher 2018-19E CPO production-cost assumptions. Hence, we are revising down our 12-month target price on FGV to RM1.60 (from RM1.87), based on an unchanged 2018E PER of 22x. We maintain our HOLD rating. Upside/downside risk: stronger/weaker-than-expected FFB and CPO production.

Source: Affin Hwang Research - 5 Sept 2017