• Keep NEUTRAL, with new MYR1.30 TP from MYR1.15, 5% upside. 1H24 core earnings met our, but fell short of consensus expectations. FGV Holding’s plantation division returned to the black while the sugar division reversed into losses. We expect earnings to pick up, given the upcoming peak FFB output season and lower costs. However, valuation remains unexciting – the stock is trading at a steep 40x FY25F P/E vs peer range of 18-22x.

• 1H24 core net profit came in within our, but was below consensus expectations, at 48% and 28% of FY24F. Core net profit recovered strongly QoQ in 2Q24 to MYR42.6m (from just MYR2.5m in 1Q24). No dividend was declared in 2Q24.

• 2Q24 FFB output jumped 23% YoY (+31% QoQ) as weather normalised, bringing 1H24 growth to +6.5% YoY. This is below FGV’s FY24 guidance of +10-15% YoY but above our 3.7% assumption. In YTD-July, however, FFB growth has improved to +9.4% YoY. FGV continues to expect a 10-15% growth for FY24, as its labour shortage should resolve by end-4Q24 (currently at 5% from 13% in 1Q24). We raise our FY24F FFB growth to 9.5% (from 3.7%), but keep our 3-4% growth for FY25F-26F.

• FGV booked 2Q24 ASP of MYR4,103/tonne (+5% QoQ), bringing 1H24 ASP to MYR4,020/tonne. It has sold 22% of its West Malaysia output up to September at c.MYR4,000/tonne. Our FY24F price remains at MYR3,900/tonne.

• Unit costs fell 5% YoY in 1H24 to MYR2,782/tonne. FGV managed to catch up on its fertiliser application in 2Q24, applying 42% of its requirements for 1H24 (from 14% in 1Q24), and expects to be able to catch up more in the coming quarters. It has tendered most of its fertiliser requirements for 2024 already at prices 20-25% lower YoY. Despite this, FGV has raised its unit cost guidance to MYR2,500/tonne (-10% YoY), from MYR2,300-2,400/tonne, on the back of higher manuring activities in the coming quarters.

• The oils and fats division also recorded stronger QoQ contribution in 2Q24, led by higher volumes of bulk commodities but offset by weaker edible oil sales volumes. Margin also improved QoQ in 2Q24 to 1.6% (from 0.8% in 1Q24) and we expect this to maintain in 2H24 as demand recovers.

• The sugar division reversed into losses in 2Q24 (from a profit in 1Q24), despite the MYR72m in government incentives received, coming largely from hedging losses and higher raw sugar costs. Sales volumes fell 6% QoQ and 4% YoY in 2Q24, while ASP dropped 3% QoQ, but rose 16% YoY. Going forward, although it has reduced its hedging positions, earnings may still be affected by low utilisation rates at its Johor plant (2Q24: 29%).

• Maintain NEUTRAL with higher SOP-based TP of MYR1.30 (from MYR1.15), as we raise FY24F-26F earnings by 10.9%, 6.5% and 3.6% after hiking FFB output assumptions. Our TP also includes a 12% ESG discount.

Source: RHB Research - 28 Aug 2024