1Q18 Earnings Below Our Expectations

FGV’s 1Q18 revenue fell by 16.5% yoy to RM3.6bn while reported core net profit dropped to RM13.3m (-81.2% yoy). Core earnings were below expectations, mainly due to a lower-than-expected contribution from the sugar business, losses from associates and a higher-thanexpected effective tax rate. We are cutting our 2018-20E core EPS by 17-22% after the weak 1Q18 results. In tandem with our earnings cuts, we are lowering our 12-month TP to RM2.02, based on a 2019E PER of 25x. We reaffirm our BUY call on FGV as we expect earnings to continue to grow going forward due to a better contribution from the sugar business as well as an increase in FFB and CPO production.

Higher Profit From Sugar Segment But a Decline in Plantation Segment

Felda Global Ventures’s (FGV) 1Q18 revenue fell by 16.5% yoy to RM3.6bn, attributable to a lower contribution from the sugar and LSB (Logistics and Support Business) divisions, but partially offset by a higher contribution from the plantation division. The plantation division’s revenue rose by 28.3% yoy to RM2.8bn, while that for the sugar and LSB divisions fell yoy by 15.8% and 84.2%, respectively, to RM539.7m and RM231.7m. For 1Q18, FGV reported a PBT of RM26.2m, vs. a loss of RM32.3m in 1Q17, due to improvement in the sugar business (attributable to lower raw sugar material costs, but which was partially offset by a reduction in sugar sales volume coupled with lower ASPs) and an absence of provisions for impairment of receivables and provision for litigation loss that was recognised in 1Q17 amounting to RM67.1m. However, profit from the plantation sector dropped by 61.4% yoy to RM18.3m in 1Q18, partly due to a lower CPO ASP realised at RM2,472/MT, vs. RM3,061/MT in 1Q17, despite higher sales volumes.

1Q18 Core Net Profit at RM13.3m, Below Our Expectations

After excluding impairments, forex losses and other one-off items, FGV recorded a core net profit of RM13.3m in 1Q18, down by 81.2% yoy. This was below expectations, accounting for only 4% of our going-in 2018 forecast, and the variance was mainly due to a lower-than-expected contribution from the sugar division, losses from associates as well as a higher-than-expected effective tax rate.

Source: Affin Hwang Research - 30 May 2018