Review

• FGV’s 3QFY23 results came in below expectations. The deviation was mainly due to lower-than-expected FFB production and JV contributions as well as higher production cost. Excluding the impact of fair value change in relation to the Land Lease Agreement (LLA), and other non-core items, the group registered a core net profit of RM48.3mn (-67.9% YoY) in tandem with 20.6% drop in revenue.

• Cumulatively, 9MFY23 showed a core net loss of RM63.7mn on the back of 28.1% YoY decline in revenue.

• Plantation: 9MFY23 FFB fell 9.3% YoY on the back of a 7.2% drop in FFB yield. The realised CPO and PK prices plunged 20.9% and 41.5% to RM3,948/tonne and RM2,000/tonne, respectively. The average production cost (ex-mill) increased by 35.1% YoY to RM2,871/tonne in 9MFY23. As a result, this segment reported an 88.1% decrease in PBT to RM186.6mn. The weak results were further compounded by margin compression in the downstream and fertiliser businesses as well as lower JV’s earnings.

• Sugar: Given higher ASP, LBT narrowed to RM77.4mn in 9MFY23 compared to RM130.7mn last year. Besides, the improvement was also attributable to lower freight costs and better plant utilisation rate.

• Logistics and Others: This division reported a higher PBT of RM102.6mn (+38.5% YoY), mainly driven by higher handling rates.

• No dividend was declared for the quarter under review.

Impact

• We revise down FY23-FY25 earnings forecasts by 55.6% - 98.8% after factoring in lower-than-expected 3Q results, lower FFB production to be in line with management’s guidance, higher production costs and weaker contributions from JVs.

Outlook

• Management expects the CPO prices to stay in between RM3,800 and RM4,000 per tonne in 4QFY23.

• FFB production is expected to grow by 10-16% in 4QFY23 in tandem with better yield.

• The increase in global oilseed production in 2024 on larger soybean and sunflower seed could potentially pose a downside risk to CPO prices.

• Meanwhile, the development of an El-Nino event will likely continue until at least early-2024 and would subsequent weaken thereafter. We believe El-Nino has a positive impact on CPO prices as the event is deemed as being a strong market sentiment issue. However, the weather impact may be offset by an easing labour crunch and result in efficiency in crop recovery, in our view.

Valuation

• We maintain SELL on FGV with a lower target price of RM1.41/share (previously RM1.45), based on 0.8x CY24 P/BV.

• FGV’s public spread standing at 13.09% as of 22 Nov 2023, failed to meet the 25% public spread requirement. To recap, FGV has received a 5th extension from Bursa Securities to comply with the minimum public shareholding spread by 2 March 2024. We believe that Felda, which holds 81.91% of the FGV shares, will dispose some shares to comply with the public spread requirement, after the completion of the bonus issue, which is expected to be completed by 1QFY24.

Source: TA Research - 30 Nov 2023