9MFY21 CNP of RM289.4m came above our/consensus’ expectation at 90%/80%. We expect sequential earnings improvement on higher CPO prices outstripping softer FFB output.FY21 FFB output will likely miss management’s previous guidance (-3% to -4% YoY) but should be within our estimate (-7% YoY). Raise FY21-22E earnings by 61-9%. Maintain MP with a higher TP of RM1.55 (from RM1.45) @ FY22E PER of 16x. ESG score is 74%.

Above expectations. 9MFY21 core net profit (CNP) of RM289.4m at 90%/80% of full-year estimate is above both our/consensus’ expectations due to higher-than-expected CPO price. 9MFY21 FFB output of 2.92m MT (-5% YoY) is at 73% of full-year estimate. Absence of DPS is as expected.

Results’ highlight. YoY, 9MFY21 CNP leapt (+659%) mainly due to an improvement in plantation PBT of RM902.8m (from LBT of RM57.9m in 9MFY20) due to higher average CPO price (+37%) outstripping a 5% decline in FFB output. QoQ, 3QFY21 rose (+62%) lifted by higher average CPO price (+14%) and a higher FFB output (+6%).

Upstream to remain strong. Premised on higher CPO prices (MPOB QTD- 4QFY21: +17% QoQ) outstripping softer FFB output, we expect 4QFY21 earnings to improve sequentially. As 10MFY21 FFB output is down 9% YoY, we think FY21 FFB output will likely miss management’s earlier guidance (-3% to - 4% YoY), but should be closer to our estimate (-7% YoY). Meanwhile, the industry’s labour situation is expected to improve with the intake of 32k foreign workers (expected in 1QCY22). FGV’s current foreign worker coverage is ~70%.

Raise FY21E earnings by 61% on higher realized CPO price of ~RM3,600/MT (from ~RM3,200/MT), and FY22E earnings by 9% on windfall levy revision.

Maintain MARKET PERFORM with a higher Target Price of RM1.55 (from RM1.45) based on FY22E PER of 16x. Traded at FY22E PER of 15.1x, we think FGV is fairly valued at this juncture, while still being exposed to ESG concerns. Upstream peer is trading at PER of <13x which is more attractive. ESG score is 74%. Key risks include: (i) FELDA returning with a higher offer, (ii) sharp rise/fall in CPO prices, and (iii) estates and/or operations shutdown due to COVID-19 resurgence.

Source: Kenanga Research - 1 Dec 2021