We deem 1QFY21 CNL of RM25.7m as within our/consensus’ expectations in anticipation of sequential earnings improvements on higher CPO prices and production recovery. However, FMCO could be a slight drag. Management has slightly lowered FY21 FFB growth guidance to 2-4%, in line with our 3%. Maintain MP with TP of RM1.30 @ FY21E PER of 16x. Upstream peers (<16x PER) are more attractive.

Within expectations. 1QFY21 registered core net loss (CNL) of RM25.7m, but is deemed as within both our/consensus’ expectations in anticipation of improvement in subsequent quarters on higher CPO prices and production recovery.1QFY21 FFB output of 742kMT (+4% YoY; 17% of full-year estimate) and absence of DPS are also within expectations.

Results’ highlight. YoY, 1QFY21 CNL narrowed (-84%) mainly due to higher average CPO price (+19%), improvement in FFB output (-4%) and better sugar PBT of RM50.7m (vs. LBT of RM27.9m in 1QFY20). QoQ, 1QFY21 plunged into CNL of RM25.7m (vs. CNP of RM114.4m in 4QFY20) as lower FFB output (- 29%) overwhelmed the impact of higher average CPO price (+4%).

Improvements ahead. Premised on higher CPO prices (MPOB QTD-2QFY21: +12% QoQ) alongside production recovery, 2QFY21 earnings are likely to improve sequentially. However, Malaysia’s FMCO could be a slight drag. Meanwhile, management has slightly lowered FY21E FFB growth (from 3-5%) to 2-4%, which is still in line with our 3%.

No changes to earnings estimate.

Maintain MARKET PERFORM with a Target Price of RM1.30 based on FY21E PER of 16x. Traded at FY21E PER of 16.7x, we believe upside is limited. Upstream peers trading at PER of <16x are more attractive, at this juncture. Meanwhile, FY21E PBV at 1.11x implies +0.5SD from mean. ESG score is 74%.

Key risks include: (i) Felda raising offer price, (ii) sharp rise/fall in CPO prices, (iii) estates and/or operations shutdown due to COVID-19.

Source: Kenanga Research - 31 May 2021