Review

• FGV's results for 2QFY24 exceeded expectations, primarily due to improved margins. Excluding the impact of fair value change in relation to the Land Lease Agreement (LLA), and other non-core items, the group achieved a core net profit of RM102.8mn, compared to a loss of RM26.0mn for the same period last year.

• Cumulatively, 1HFY24 core profit increased to RM80.7mn versus a net loss of RM112.0mn recorded a year ago, mainly driven by higher palm oil prices.

• Plantation: In 1HFY24, FFB saw a 6.5% YoY increase, driven by an 11.6% rise in FFB yield. The realised CPO price edged up 0.6% to RM4,020/tonne, while the PK price rose 15.0% to RM2,290/tonne. Meanwhile, the average production cost (ex-mill) decreased by 4.9% to RM2,782/tonne in 1HFY24. As a result, this segment reported a PBT of RM38.4mn, reversing the LBT of RM3.3mn recorded in the previous year.

• Oils & Fats: 1HFY24 PBT rose by 15.5% YoY to RM94.2mn. This growth was driven by higher sales volumes and improved margins in the bulk commodities segment.

• Sugar: Due to ASP and increased sales volume, this division reported a PBT of RM36.8mn, a significant turnaround from the LBT of RM45.5mn. The improvement was also attributed to better plant utilisation rates and incentives received for certain packaged sugar sold in the domestic market. However, it was noted that this division incurred a loss in 2QFY24, primarily due to high input costs, including raw sugar and freight, as well as Ringgit depreciation.

• Logistics and Others: This division reported a higher PBT of RM70.1mn (+15.2% YoY). The growth was primarily driven by increased transportation rates and tonnage handled, along with higher income from Multi-modal Transport Operator operations and baggage handling for Hajj and Umrah pilgrims as well as rise in contributions from the IT business.

• No dividend was declared for the quarter under review.

Impact

• The earnings forecasts for FY24 -FY26 have been adjusted upward by 3.8%- 65.3%, respectively, following the higher-than-expected 1HFY24 results, better margins and higher FFB production growth. Some key-highlights from the briefing:

• Management expects the CPO prices to remain in the range between RM3,800 and RM4,000 per tonne for FY24.

• The FFB production guidance for FY24 remains unchanged, with an expected growth rate of 10-15%, supported by improved yield and the ease of labour shortages.

• The Group has submitted its petition to the United States Customs and Border Protection (CBP) in June 2024, seeking to modify the Withhold Release Order (WRO). Management anticipates that the process of lifting the WRO will span approximately 9 to 12 months.

• Meanwhile. FGV has produced its first batch of EUDR-compliant CPKO. However, it remains to be seen whether the documentation has been processed or approved by the EUDR system.

• According to management, there are significant costs associated with meeting all the EUDR requirements, and they believe that the premium paid by customers should offset these expenses.

Valuation

• Maintain SELL on FGV with a revised target price of RM1.19/share, based on 0.7x CY25 P/BV.

Source: TA Research - 28 Aug 2024