FGV’s 6M19 revenue fell by 6.9% yoy to RM6.6bn and it recorded a core net loss of RM106.7m. This was below expectation partly due to the weaker-than-expected contribution from the plantation and sugar divisions. We now project a 2019 core net loss of RM93.9m, and we cut our 2020/21 core EPS by 22%/16% mainly to account for the weaker-than-expected results, especially for the plantation and sugar divisions. Given the earnings forecast revisions, our target price for FGV has been lowered to RM1.00, based on an unchanged 2020E PER of 32x. We maintain a HOLD rating on FGV.

6M19 Results Below Expectations, Core Net Loss at RM106.7m

FGV Holdings (FGV) reported a lower 6M19 revenue of RM6.6bn (-6.9% yoy), due to lower revenue contribution across all divisions, with plantation (due to lower CPO prices), sugar (due to lower sugar prices and sales volume) and logistics & others businesses declining by 5.2%, 13.7% and 16.2% yoy, respectively, to RM5.4bn, RM959.9m and RM198m. FGV’s plantation division was affected by a lower CPO ASP of RM1,972/MT in 6M19 (6M18: RM2,447/MT), but this was partially offset by a higher CPO production of 1.55m MT, up 17.3%. FGV posted a LBT (which includes impairments, forex gain and provision for staff separation scheme) of RM33.4m in 6M19 vs. a PBT of RM26.7m in 6M18. After excluding the one-off items, FGV recorded a core net loss of RM106.7m in 6M19 vs. a core net profit of RM8.2m in 6M18. This was below our expectation, mainly attributable to lower-than-expected CPO prices and wider-than-expected losses at its sugar division.

2Q19 Losses Widened Qoq

Sequentially, FGV’s 2Q19 revenue was flat at RM3.3bn (+0.1% qoq) but it reported a LBT of RM56.8m (1Q19 PBT: RM23.4m). The loss in 2Q19 was partly attributable to the lower CPO ASP and widening losses at its sugar division. After excluding for one-off items, FGV posted a core net loss of RM78.7m, widening from a core net loss of RM28.1m in 1Q19.

Source: Affin Hwang Research - 29 Aug 2019