INVESTMENT HIGHLIGHTS

• Plantation division sets new FFB volume target of 4.65m tonnes

• Better earnings from sugar and logistics support business

• Earnings estimates maintained

• Maintain NEUTRAL with TP of RM1.54

FGV Holdings Berhad (FGV) organised an analyst briefing yesterday and we returned feeling neutral on the Company’s near term prospect. This is due to low CPO price and its turnaround strategy may take time to see results. Key takeaways from the briefing are as below:

Plantation division sets new FFB volume target of 4.65m tonnes.

This is slightly lower than the previous target of 4.85m tonnes. Effectively, the FFB growth target is now lowered to +9% (from +13%). Other targets for FY2018 include: i) Oil Extraction Rate of 20.5%, ii) CPO production of 3.0m tonnes, and iii) CPO production cost of RM1600 per tonne. Recall that in 2QFY18, FGV plantation division was in loss before tax and zakat of RM6m (against 1QFY18 Profit Before Zakat and Tax of RM18m).

Better earnings from sugar and logistics support business. Sugar segment turned profitable due to lower raw sugar cost and strengthen Ringgit. Logistics and support business sector earnings also improved due to higher tonnage carried.

Earnings estimates maintained. We maintain our assumption of core net loss of RM72.7m for FY18. Things should improve in FY19 with expected FFB volume recovery. The information gathered during the briefing has been factored in.

Maintain NEUTRAL with TP of RM1.54. We maintain our TP of RM1.54 based on Price To Book of 1.0x. Despite the weak earnings prospect, the share price is trading at below Book Value of RM1.54 hence suggesting limited downside.

Source: MIDF Research - 4 Sept 2018