• FGV recorded strong earnings in 2020, core net profit was up >100% yoy to RM387.5m, underpinned by stronger profits from the plantation and logistics divisions coupled with lower losses from the sugar division. This came in above our expectations due to better-than-expected contribution from its plantation and sugar divisions
• We raise our 2021-22E core EPS by 135.8%/114.5%, mainly to take into account higher earnings from its plantation and sugar divisions.
• Maintain our HOLD rating on FGV with a new TP of RM1.30 to reflect the Felda takeover offer price (implying a PER of 11.8x on our 2021E core EPS)

Stronger Sequentially

FGV Holdings (FGV) reported a marginally higher 4Q20 revenue of RM4.0bn (+0.5% qoq) and PBT grew by 88.8% qoq to RM326.1m. Higher profits were seen at the plantation and sugar divisions. FGV’s FFB production in 4Q20 declined by 22.6% qoq to 1.04m MT while the CPO ASP increased by 15.7% qoq to RM3,059/MT. After excluding the one-off items, FGV recorded a core net profit of RM295.7m in 4Q20, up 41.8% yoy.

2020 Core Net Profit at RM387.5m – Above Expectations

FGV’s 2020 revenue was higher by 6.2% yoy to RM14.1bn, due to higher contribution from the plantation (+6.2%) and sugar (+8.9%) divisions, but partially offset by lower revenue from logistics & others (-14.5%). FGV reported a 2020 PBT (which includes impairments, PPE written off, gain on disposal of assets and forex loss) of RM353.5m vs LBT of RM338.8m in 2019, mainly attributable to higher profit registered in the plantation (on higher CPO prices of RM2,675/MT vs RM2,021/MT in 2019) 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 RM387.5m in 2020, up >100% yoy. The earnings are above our expectations and the variance was mainly due to higher-than-expected contribution from its plantation and sugar divisions given the lower-than-expected operating expenses. FGV declared a DPS of 3 sen (2019: nil), as expected.

Maintain HOLD With New 12-month TP of RM1.30

Given the strong 2020 results, we raise our 2021-22E core EPS by 135.8%/114.5%, mainly to take into account higher earnings from its plantation and sugar divisions. Nevertheless, we maintain our HOLD rating on FGV with a new TP of RM1.30 to reflect major shareholder Felda’s takeover offer price (representing a PER of 11.8x on our 2021E core EPS; from RM1.31 previously). Note that in the event Felda and its associates hold in aggregate >90% of FGV shares, Felda will submit a request to withdraw FGV’s listing status.

Key Risks

Key upside/downside risks include: 1) stronger/weaker economic growth leading to a higher/lower consumption of vegetable oils; 2) a sustained rebound/plunge in CPO prices; 3) higher-/lower-than-expected FFB and CPO production; 4) stronger/weaker demand for sugar products; 5) changes in policies; and 6) Felda raising the takeover offer price/ withdrawing the takeover offer.

Source: Affin Hwang Research - 1 Mar 2021