FGV’s 9M17 revenue increased by 5% yoy to RM12.7bn while reported core net profit of RM201.9m (vs. a core net loss of RM109m for 9M16) was above our and street expectations. We have raised our 2017-19 core EPS forecasts by 11-17% mainly to account for the improved near-term outlook resulting from the lower losses in the sugar business, higher contribution from the plantation division and lower operating expenses. With expected stronger earnings growth, our TP on FGV has been revised to RM2.09, we upgrade FGV to a BUY.

Higher Profit From Plantation and LO But Offset by Losses in Sugar

Felda Global Ventures’ (FGV) 9M17 revenue increased by 5% yoy to RM12.7bn. This was mainly due to higher contribution across all divisions, with plantation, sugar and LO (Logistics & Others) division revenues rising by 1.9%, 10.7% and 29.5% yoy, respectively, to RM9.63bn, RM2.01bn, and RM1.05bn. For 9M17, FGV’s PBT more than tripled yoy to RM170.3m, largely due to higher contribution from the plantation and LO divisions but partially offset by losses incurred in the sugar business as a result of higher raw sugar costs and the weak RM, despite improvement in the selling price. The plantation sector showed improvement in profit given the higher CPO sales margin on the back of a higher CPO ASP of RM2,820/MT in 9M17 as compared to RM2,458/MT in 9M16 as well as higher CPO production by 10% yoy to 2.13m MT, but this was partially offset by the impairment of receivables and provision for litigation loss. The LO division recorded a higher profit in 9M17, mainly attributable to higher throughput and tonnage carried by FGV’s transport operation in tandem with the higher CPO production volume.

9M17 Core Net Profit of RM201.9m - Above Our and Street Expectations

After excluding impairments, provision for litigation loss, forex gain and other one-off items, FGV recorded a core net profit of RM201.9m in 9M17 from a core net loss of RM108.9m in 9M16. This was above our expectations, accounting for 90% of our previous 2017 forecast. The variance was mainly due to lower-than-expected losses from the sugar business and higher-than-expected contribution from the plantation division. FGV has declared an interim DPS of 5 sen for the quarter (9M16: Nil).

Source: Affin Hwang Research - 24 Nov 2017