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.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....