FGV’s 2018 revenue fell by 20.4% yoy to RM13.5bn and it recorded a core net loss of RM86.2m. The loss in 2018 was wider than we expected mainly due to the weaker-than-expected contribution from the plantation and sugar divisions. We cut our 2019-20E core EPS forecasts by 4-5% after the weak 2018 results. Nevertheless, we expect core earnings to return to profitability in 2019E and to continue to improve going forward on higher CPO prices and production volumes as well as lower operating costs. We now apply a higher target PER of 32x on our 2019E core EPS and raise our TP to RM1.08 from RM0.88 previously. We believe the higher PER target is appropriate taking into account FGV’s size, status and trading liquidity. Maintain HOLD rating on FGV.

2018 Earnings Impacted by Weak CPO Prices and Impairments

FGV Holdings (FGV) reported a 2018 revenue of RM13.5bn (-20.4% yoy), mainly attributable to lower contributions from the sugar and LSB (Logistics and Support Business) divisions, although this was partially offset by a higher contribution from the plantation division. The plantation division’s revenue rose by 20.3% yoy to RM10.2bn, while that of the sugar and LSB divisions fell yoy by 17.1% and 82.1%, respectively, to RM2.2bn and RM1bn. For 2018, FGV reported a LBT of RM1bn vs. a PBT of RM402.5m in 2017, due to a lower contribution from the plantation division as well as an impairment loss on intangible assets, PPE and investments, but this was partially mitigated by a higher profit contribution from the sugar division. FGV’s plantation division was affected by a lower CPO ASP of RM2,282/MT in 2018 (2017: RM2,792/MT) and higher CPO production cost of RM1,737/MT (2017: RM1,601/MT), but this was partially offset by higher CPO sales volume at 2.1m MT (2017: 1.7m MT).

2018 Core Net Loss of RM86.2m

After excluding impairments, forex gains and other one-off items, FGV recorded a core net loss of RM86.2m in 2018 vs. a core net profit of RM280.9m in 2017. The loss was wider than our expectation of a RMRM75m core net loss, due to weaker-than-expected contributions from the plantation and sugar divisions.

E

Source: Affin Hwang Research - 1 Mar 2019