Strong Quarter on Higher CPO Prices

• FGV recorded a higher core net profit of RM208.5m in 3Q20 (>100% qoq), underpinned by stronger profits from the plantation and logistics divisions on higher FFB production and CPO prices. This came in above our expectations due to better-than-expected contribution from the plantation division
• We raise our 2020E/21E core earnings forecasts by 184.7%/32.5% to take into account the higher contribution from its plantation division with higher CPO ASP assumptions of RM2,650/MT for 2020E and RM2,625/MT for 2021E
• As such, our TP for FGV has been raised to RM1.31 and we upgrade FGV to a HOLD (from SELL previously) as we believe FGV will continue to be in the black due to the supportive CPO price environment. However, its share price could remain volatile due to uncertainties surrounding the LLA termination news and the Withhold Release Order (WRO) issued by the US Customs and Border Protection (US CBP) on FGV’s palm-oil and palm products that has an adverse impact on the company’s image and reputation

Strong Quarter on Higher FFB Production and CPO Prices

FGV Holdings (FGV) reported a stronger 3Q20 revenue of RM4bn (+21.1% qoq) and PBT (which includes impairments and PPE written off) grew by >100% qoq to RM172.7m. The EBITDA margin in 3Q20 increased by 2.2ppt qoq to 10.7% due mainly to a better margin at the plantation division given the higher FFB production and CPO prices. FFB production in 3Q20 increased by 13.2% qoq to 1.35m MT and the CPO average selling price increased to RM2,645/MT, up 14.6% qoq. The logistics & others division also recorded a higher profit in tandem with higher FFB production, but the sugar division showed higher losses in 3Q20 due to impairments. After excluding the one-off items, FGV recorded a core net profit of RM208.5m in 3Q20, compared to RM49m in 2Q20.

9M20 Core Net Profit at RM91.8m

FGV’s 9M20 revenue was slightly lower by 0.4% yoy to RM10.1bn, due to lower contribution from the plantation (-0.3%) and logistics & others (-22.2%) divisions that was partially offset by higher revenue contribution from the sugar division (+4%). FGV reported a 9M20 PBT (which includes impairments, PPE written off and forex gain) of RM27.4m vs LBT of RM396.3m in 9M19, mainly attributable to higher profit registered in the plantation (given the higher CPO price of RM2,536/MT vs RM1,975/MT in 9M19) and logistics & others divisions as well as lower losses from the sugar division. After excluding one-off items, FGV posted a core net profit of RM91.8m in 9M20 vs a core net loss of RM68m in 9M19. The results are above our expectations and the variance was mainly due to the higher-than-expected contribution from its plantation division.

Source: Affin Hwang Research - 18 Nov 2020