INVESTMENT HIGHLIGHTS

• Earnings below expectation

• RM788m of impairments in 3QFY18

• Expecting worse FY18 core net loss

• Maintain NEUTRAL with lower TP of RM0.91

Earnings below expectation. FGV Holdings Berhad (FGV) core net loss of RM81m in 9MFY18 is worse than expected. Previously, we were expecting RM73m core net loss for the full Financial Year. Consensus was expecting RM33m core net profit. The negative deviation is caused by lower than expected FFB volume.

RM788m of impairments in 3QFY18. In our core net income/loss calculation, we have included RM220m of LLA cash paid and excluded RM798m impairments, RM209m net LLA accounting charge, RM4m forex gain and RM7m Plant Property & Equipment (PPE) writeoffs. Most of the impairments are charged (RM788m) in 3QFY18. The top three impairments include: i) Goodwill & Intangible Asset RM562m, ii) PPE RM124m and Account Receivables RM57m.

Expecting worse FY18 core net loss. We are now expecting worse core net loss of RM97m (previously RM73m) for FY18. FY19 core earnings has also been reduced to RM33m (from RM74m). We have also assumed lower FFB production for FGV.

Maintain NEUTRAL with lower TP of RM0.91. We have reduced our TP to RM0.91 (from RM1.54). Our Target Price To Book has been reduced to 0.7x (from 1.0x) to account for the weak earnings prospect. The Book Value used has been updated to RM1.30.

Source: MIDF Research - 29 Nov 2018