We deem 1HFY21 CNP of RM94.4m as above our/consensus’ expectations. We expect sequential earnings improvement on higher CPO prices and seasonal production pick-up. Management is now expecting FY21E FFB decline of 3% to 4% (reversingfrom growth of 3- 4%). Maintain MP with a higher TP of RM1.45 (from RM1.30) @ rolled-over FY22E PER of 16x. ESG score is 74%

Deemed above expectations. 1HFY21 core net profit (CNP) of RM94.4m is deemed above both our/consensus’ expectations in anticipation of improvements on higher CPO prices and production recovery. 1HFY21 FFB output of 1.80m MT (-5% YoY) is at 41% of full-year estimate. Absence of DPS is as expected.

Results’ highlight. YoY, 1HFY21 CNP (RM94.4m)’s turnaround was mainly due to an improvement in plantation PBT of RM421.6m (from LBT of RM105.0m in 1HFY20) due to higher average CPO price (+33%) outstripping a 5% decline in FFB output. QoQ, 2QFY21’s turnaround was similarly driven by an improvement in plantation PBT of RM472.4m (vs. LBT of RM50.8m in 1QFY21) on the back of higher average CPO price (+5%) and a seasonally higher FFB output (+43%).

Lower FFB guidance. Management is now expecting a decline in FY21E FFB output of 3-4% (vs. growth of 3-4% earlier). That said, 2HFY21 production should still be seasonally higher. Meanwhile, the group’s 1HFY21 fertilizer application at ~45% is on track. Premised on higher CPO prices (MPOB QTD- 3QFY21: +4% QoQ) and seasonal improvements in FFB output, we expect 3QFY21 earnings to improve sequentially.

Tweak FY21E/FY22E earnings by 10%/0.3% on higher CPO price of ~RM3,200-3,000/MT (from ~RM2,800/MT), but lower FFB growth of -7%/+3% (from 3% previously).

Maintain MARKET PERFORM with a higher Target Price of RM1.45 based on rolled-over FY22E PER of 16x. Traded at FY22E PER of 16.5x, we think FGV is fairly valued at this juncture, while still being exposed to ESG concerns. Upstream peers trading at PER of <13x is more attractive. ESG score is 74%.

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

Source: Kenanga Research - 1 Sept 2021