All segments weaker. 3Q12 net profit of MYR246m (+30% QoQ, -40% YoY) was lifted by a MYR47m disposal gain on quoted investments. Excluding this one-off, 3Q12 core net profit of MYR199m (-9% QoQ, - 51% YoY) was below our and consensus expectations with 9M12 core net profit of MYR618m (-49% YoY) at 59% of our full-year forecast and 68% of consensus. The plantations and sugar divisions were the key culprits. We cut our FY12-14 net profit forecasts by 28%/13%/13% and lower our TP to MYR4.55 (-13%) on an unchanged 15x mid-CY13 PER. Maintain HOLD. FGVH‟s re-rating catalyst lies with the deployment of its MYR4.4b IPO proceeds for earnings-enhancing M&As.

CPO production and ASP weaker than expected. FGVH‟s plantation division (including 49%-owned FHB) posted a 3Q12 pretax profit of MYR220m (-22% QoQ, -40% YoY) on lower CPO ASP (-12% QoQ, - 8% YoY) and flattish FFB output QoQ (-17% YoY) due to tree stress and its replanting programme (despite our earlier belief that FFB output grew 4% QoQ in 3Q12). This led to 9M12 FFB output of 3.47m tonnes (-9% YoY), just 68% of our previous full-year forecast. Hence, we have deepened our FY12 FFB contraction assumption to 8% YoY (previously -2% YoY). We also downgrade our industry-wide 2012 CPO ASP assumption to MYR2,950/t (-6%, from MYR3,150/t).

Sugar segment fared poorly. The sugar division posted a lower-thanexpected pretax profit of MYR70m in 3Q12 (-11% QoQ, 0% YoY). Operations were affected by higher raw sugar costs in the current quarter, as the raw sugar received under its long-term contract was more expensive than spot purchases. Meanwhile, its North American operations posted a relatively flattish pretax loss of MYR18m.

Earnings forecasts revisited. We believe FGVH is likely to post its weakest profits in 4Q, as CPO ASPs have weakened by MYR500-600/t from 3Q12. Hence, we have cut our FY12-14 net profit forecasts for FGVH mainly on (i) lower CPO ASPs (-MYR200/t) for FY12 (while maintaining our FY13-14 CPO ASP of MYR3,000/t), (ii) lower FFB output for FY12/13/14 by 7%/5%/5%, and (iii) lower earnings from sugar division (-11%-12% for FY12-14).

Source: Maybank Research - 03 Dec 2012