INVESTMENT HIGHLIGHTS

• FY18 core earnings of -RM147.4m came in below our and consensus expectations

• The loss-making position was mainly attributable to lowerthan-expected CPO price and higher production cost

• Transformation plan likely showing signs of operational turnaround earliest by 1H19

• FY19 earnings forecasts revised upward as we are seeing potential higher cost savings from operational improvement

• Maintain NEUTRAL with a revised TP of RM1.06

FY18 core earnings below expectations. FGV Holdings Berhad’s (FGV) FY18 normalised loss of RM-147.4m was below expectation as it makes up -152.2% and -76.1% of both our and consensus full year earnings forecasts respectively. This was mainly attributable to: (i) weaker-than-expected average selling price of CPO, (ii) Higher-thanexpected avg. CPO production cost and, (iii) lower FFB production.

Excluding the exceptional items. Our core loss of –RM147.4m is derived by the exclusion of fair value changes in land lease agreements (LLA), one-off items (e.g. loss of disposal, manpower rationalisation cost and insurance claims), impairment losses and provision of RM911.7m as well as property, plant and equipment (PPE) write-offs of RM55.0m.

Margins eroded. FY18’s core loss plunged by almost -170.0%yoy to - RM147.4m due to: i) weaker CPO’s ASP of RM2,282/mt (-18.3%yoy) as compared against RM2,792/mt in FY17 and, ii) higher CPO production cost ex-mill of RM1,737/mt in FY18 (+8.5%yoy). FFB production (- 1.2%yoy) was also negatively impacted by lag effect of 2016 El-Nino inline with the industry and labour issues in Sabah and Sarawak. Consequently, CPO production also fell by -5.6%yoy.

Dividend. No dividend is declared nor recommended during the year. As the company going through a transformation period, we opine that there will be no dividend in the near term.

Source: MIDF Research - 1 Mar 2019