Review

• FGV’s 4QFY23 results came in within ours but below consensus estimates. 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 RM66.4mn (-83.1% YoY).

• Cumulatively, FY23 profit plunged 99.8% YoY to RM2.7mn while revenue also dropped 24.3% YoY to RM19.4bn.

• Plantation: FY23 FFB fell 8.8% YoY on the back of a 6.7% drop in FFB yield. The realised CPO and PK prices plunged 19.3% and 34.4% to RM3,901/tonne and RM1,991/tonne, respectively. The average production cost (ex-mill) increased by 28.8% YoY to RM2,761/tonne in FY23. As a result, this segment reported an 86.1% decrease in PBT to RM294.8mn. 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 and sales volume, the LBT narrowed to RM23.1mn in FY23 compared to RM177.2mn last year. Besides, the improvement was also attributable to better plant utilisation rate and incentives received for certain packed sugar sold in the domestic market.

• Logistics and Others: This division reported a higher PBT of RM148.4mn (+42.3% YoY), mainly driven by higher handling rates.

• The group proposed a final dividend of 3sen/share for FY23 (vs. 11sen/share in FY22).

Impact

• FY24 and FY25 earnings forecasts are revised upward by 19.8% and 83.0% after factoring higher FFB production to be in line with management guidance. Besides, we also factor in lower production costs. Some key-highlights from the briefing:

• Management expects the CPO prices to stay in the range of RM3,900 and RM4,200 per tonne in FY24.

• FFB production is expected to grow by 10-15% in FY24 in tandem with better yield and ease of labour shortages.

• FGV’s current labour shortage is at 16% (~5k workers) of the total estate workforce requirements. However, the labour shortage will ease in the future as management is looking to bring in more workers from Indonesia now.

• The Group aims to submit a petition to CBP to modify the Withhold Release Order (WRO) this year.

• Management expects production cost to be reduced by 15%-20% in FY24 with the increase in yield and better cost optimisation initiatives.

Valuation

• We maintain SELL on FGV with a higher target price of RM1.50/share, based on 0.9x CY24 P/BV.

Source: TA Research - 27 Feb 2024