Despite a weaker 2017 revenue of RM16.97bn (-1.5% yoy), FGV reported a better core net profit of RM283.2m (+250% yoy). Core earnings were above expectations, mainly due to a better-thanexpected profit contribution from the plantation division. We have raised our 2018-19 core EPS forecasts by 2-8% after the good 2017 results. With expected stronger earnings growth, we revise up our 12- month TP to RM2.26 and maintain our BUY call on FGV.

Higher Profit Coming From Plantation and LO Divisions

Felda Global Ventures’s (FGV) 2017 revenue declined slightly by 1.5% yoy to RM16.97bn, attributable to lower contribution from plantation but partially offset by higher contribution from the sugar and LO (Logistics & Others) divisions. Revenue from the plantation division dropped by 4.3% yoy to RM12.9bn while thoe of the sugar and LO divisions rose 1.7% and 23.3% yoy, respectively, to RM2.7bn and RM1.4bn. For 2017, FGV’s PBT increased by 60% yoy to RM416.6m, largely due to higher contribution from the plantation and LO divisions which offset the decline in contribution from the sugar division as a result of higher raw sugar costs and the weak RM, despite an 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 RM2,792/MT in 2017 vs. RM2,560/MT in 2016, but this was partially offset by impairment in receivables and provision for litigation loss. The LO division recorded a higher profit in 2017, mainly attributable to higher throughput and tonnage carried by FGV’s transport operation in tandem with the higher CPO production volume.

2017 Core Net Profit Increased by 250% to RM283.2m

After excluding impairments, provision for litigation loss, forex gains and other one-off items, FGV recorded a core net profit of RM283.2m in 2017, up by 250% yoy. This was above expectations, accounting for 108% of our 2017 forecast. The variance was mainly due to better-than-expected contribution from the plantation division as margins improved.

4Q17 Core Net Profit Flat Qoq

Sequentially, FGV’s 4Q17 revenue increased by 3.1% while net profit nearly doubled to RM76.6m. However, core net profit after excluding the gain on disposal of a long-term investment was rather flat at RM81.2m (-0.8% qoq).

Source: Affin Hwang Research - 26 Feb 2018