FGV’s 1Q19 revenue fell by 9.1% yoy to RM3.3bn and it recorded a core net loss of RM25.7m. This was below expectation partly due to the weaker-than-expected contribution from the plantation and sugar divisions. We cut our 2019-21E core EPS forecasts by 4-63% mainly to account for the weaker-than-expected 1Q19 results. We still expect better quarters ahead for FGV as its transformation plans slowly bear fruit. Despite the earnings cut, our TP for FGV is raised to RM1.27 from RM1.08 previously as we roll forward our target PER of 32x to 2020E core EPS. We maintain our HOLD rating on FGV.

Weak Prices Affected 1Q19 Earnings – Below Expectations

FGV Holdings (FGV) reported a lower 1Q19 revenue of RM3.3bn (-9.1% yoy), while PBT (which includes reversal of impairment on financial assets, forex gains and provision of separation scheme) declined by 9.4% yoy to RM23.4m. Revenue contribution was lower across all divisions, with plantation (due to lower CPO prices), sugar (due to lower sugar prices) and logistics and support business divisions declining by 8.1%, 10% and 30.7% yoy, respectively, to RM2.7bn, RM485.6m and RM76m. FGV’s plantation division was affected by a lower CPO ASP of RM1,986/MT in 1Q19 (1Q18: RM2,472/MT), but was partially offset by higher CPO production by 14% to 762k MT. The improvement in production volumes as well as the enhanced operational efficiency resulted in lower CPO production cost of RM1,378/MT (1Q18: RM1,728/MT). After excluding impairment, forex gains and other one-off items, FGV recorded a core net loss of RM25.7m in 1Q19 vs. a core net profit of RM11.7m in 1Q18. This was below our expectation, mainly attributable to lower-than-expected CPO prices and losses at its sugar division.

Losses Narrowed Qoq

Sequentially, FGV’s 1Q19 revenue increased slightly by 1.3% qoq to RM3.3b and it reported a PBT of RM23.4m (4Q18 LBT: RM139.3m). The PBT was partly attributable to the net reversal of impairment of financial assets (RM47.5m) from the plantation and logistics and support business divisions. After excluding for one-off items, FGV posted a core net loss of RM25.7m, narrowing from RM35.4m in 4Q18.

Source: Affin Hwang Research - 30 May 2019