FGV’s FY19 CNP of RM51.5m is above our/consensus’ expected CNL of RM20.1m/RM100.2m due to FV gain from LLA and deferred tax. FY19 FFB output is within at 99% while DPS of 2.0 was a pleasant surprise. 1QFY20 FFB production should still be adversely impacted by the dry weather but higher CPO price (QTD-1QFY20: +14%) more than makes up for it. Reduce FY20E CNP by 8% and introduce FY21E CNP of RM510.9m. Still OUTPERFORM but with lower TP of RM1.50 on CY20E PBV of 1.25x (+1SD).

Above expectations. 4QFY19 registered core net profit (CNP) of RM112.0m, bringing FY19 CNP to RM51.5m (vs. CNL of RM201.6m in FY18) which is above our/consensus’ expected CNL of RM20.1m/RM100.2m. The positive deviation was mainly due to fair value (FV) gain from its LLA (RM42m) and deferred tax for its sugar division of c.RM30m. FY19 FFB output of 4.45m MT was within expectations at 99%. DPS of 2.0 sen was a surprise as we expected none given the challenging year.

Lifted by upstream plantation. YoY, despite 11% decline in CPO price, FY19 returned to the black, with CNP of RM51.5m (vs. CNL of RM201.6m in FY18) mainly riding on: (i) 6% growth in FFB output, and (ii) 17% decline in CPO production cost from operational improvements and higher FFB output. QoQ, 4QFY19 CNP improved (+378%) to RM112.0m mainly due to: (i) higher CPO prices (+9%), and (ii) narrowed losses from its sugar operations on higher average selling price. This was partially offset by a dive (-18%) in FFB output.

1QFY20 to see better CPO price realized; partially hampered by slower FFB output. Management cautions of the adverse dry weather impact on 1QFY20 FFB output. As we understand, its FFB output for Jan-Feb 2020 was affected. However, FFB for March could see an increase to partially offset the lower Jan-Feb period. Regardless, the group is still more sensitive to CPO price and given higher average CPO price (QTD-1QFY20: +14%), we expect a sequential improvement in 1QFY20. Meanwhile, CPO production cost (ex-mill) for FY20 is estimated at RM1,400-RM1,500/MT.

Reduce FY20E CNP by 8% on dry weather impact and introduce FY21E CNP of RM510.9m. In-line with management’s guidance of 1- 3% FFB growth, we reduced FY20E FFB output by 2%, implying FY20E FFB growth of 2%, resulting in 8% cut in FY20E CNP. We have also imputed FY20E DPS of 4.0 sen (from none).

Still OUTPERFORM but with a lower Target Price of RM1.50 (from RM1.70) post adjustment, on a lower CY20E PBV of 1.25x (from 1.30x), reflecting +1SD from mean. Our +1SD valuation is justified by: (i) more concrete signs of earnings improvement, especially for its upstream division, (ii) higher CPO price, and (iii) potential of further asset monetization

Source: Kenanga Research - 2 Mar 2020