FGV’s 1Q20 revenue fell by 15% yoy to RM2.8bn while core net loss widened to RM152.4m (core net loss of RM16.3m in 1Q19) mainly attributable to losses from its plantation and sugar divisions. Given the weak results, we now forecast a loss of RM75.3m for 2020 (from a core net profit of RM20.4m previously) after taking into account lower margins at the plantation division. We believe that subsequent quarters will be more unpredictable due to the Covid-19 situation and volatile crude oil prices. We maintain our SELL call on FGV with an unchanged TP of RM0.62, based on an unchanged PER of 32x on 2021E core EPS.

1Q20: a Tough Quarter

FGV Holdings (FGV) reported a lower 1Q20 revenue of RM2.8bn (-15% yoy), due to declines in revenue contribution from its plantation and logistics & others businesses of 19.4% and 4.8% yoy, respectively, to RM2.2bn and RM71.6m. Meanwhile, the sugar division’s revenue increased by 5.6% yoy to RM513m. FGV posted a LBT (which includes impairments and forex gain) of RM163.1m in 1Q20 vs. a PBT of RM23.4m in 1Q19. The plantation (due to lower FFB production and higher production costs) and sugar (due to weaker margins, higher finance costs and depreciation due to the commercialisation of the Johor plant) divisions recorded losses in 1Q20. FGV’s plantation division in 1Q20 was affected by a decrease in FFB production of 32.6% yoy to 0.71m MT, but this was partially cushioned by a higher CPO ASP of RM2,669/MT in 1Q20 (1Q19: RM1,986/MT). The reduction in FGV’s FFB production was attributable to the lagged impact of dry weather conditions experienced in 2019 coupled with the Movement Control Order that disrupted harvesting process (especially the impact from temporary closure of estates and mills at the 6 districts in Sabah in Mar20-Apr20).

Core Net Loss Widened to RM152.4m From RM16.3m in 1Q19

After excluding one-off items, FGV recorded a core net loss of RM152.4m in 1Q20, widening from a core net loss of RM16.3m in 1Q19. This was below our expectation, partly due losses at its plantation division.

Source: Affin Hwang Research - 29 May 2020