Review

• FGV's 3QFY24 results surpassed expectations, driven by better margins and higher-than-expected contribution from the Oil & Fats division. Excluding the effects of fair value changes related to the Land Lease Agreement (LLA) and other non-core items, the group recorded a core net profit of RM221.5mn, a significant increase from RM48.3mn in the same period last year.

• Cumulatively, 9MFY24 core profit rose to RM302.3mn, compared to a net loss of RM63.7mn in the previous year, primarily driven by higher palm oil prices and increased FFB production.

• Plantation: In 9MFY24, FFB production grew by 11.7% YoY, driven by a 17.7% improvement in FFB yield. The realised CPO price increased slightly by 1.4% to RM4,004/tonne, while estate operational costs declined by 8% during the same period. Consequently, this segment recorded a PBT of RM134.4mn, a significant turnaround from the LBT of RM4.0mn in the previous year.

• Oils & Fats: 9MFY24 PBT declined by 2.0% YoY to RM189.0mn, primarily due to reduced margins in the bulk commodities and chemical segments, with the latter being impacted by lower glycerin prices. The division faced tighter margins in the edible oils segment due to price competition in the international market.

• Sugar: Driven by higher ASP and increased sales volume, the division reported a smaller LBT of RM17.4mn, marking a significant improvement from the LBT of RM77.4mn. This improvement was also supported by better plant utilisation rates and incentives received for certain packaged sugar sold in the domestic market.

• Logistics and Others: This division reported a higher PBT of RM116.6mn (+13.7% 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 41.5%-124.5%, respectively, following the higher-than-expected 9MFY24 results, better margins and higher contribution from the Oil & Fats division.

Outlook

• We expect the FFB production to increase largely due to improved harvesting activities, following the resolution of labour shortage issues. However, we believe the current high CPO prices are unsustainable and may be impacted by a large soybean harvest in the U.S. and South America in 2025. The increases in supply in these regions, particularly soybean and other competing oils, are expected to put downward pressure on CPO prices.

• Meanwhile, the sugar division continues to face higher input costs pressure. However, fourth quarter raw sugar prices are expected to be lower and this would translate into lower production costs.

Valuation

• Maintain HOLD on FGV with a revised target price of RM1.25/share (previously RM1.19/share), based on 0.7x CY25 P/BV.

Source: TA Research - 28 Nov 2024