CIMB Research positive on FGV’s aggressive KPIs, retains Hold

The board is investigating six matters on FGV

KUALA LUMPUR: CIMB Equities Research is positive on FGV Holdings Bhd’s aggressive key performance indicators (KPIs) set to turn around its operations and performance.
 
It said on Tuesday that the KPIs, if successfully executed, there could be upside to its earnings projection. 

“However, this is offset by our concerns of higher labour costs, potential provisions for its 50%-investment in Trurich and rightsizing its manpower, as well as rising competition for its sugar refining business,” it said.

CIMB Research maintained its Hold rating and TP of 92 sen (10% discount to sum-of-parts). 

“We will turn more positive when we see evidence of operational turnaround outstripping these concerns. We estimate 4Q core earnings (excluding fair value of land lease agreements) remaining weak, in view of the lower average CPO price in 4Q18 of RM1,902 a tonne vs. 3Q18’s RM2,192 per tonne,” it said.

FGV is targeting fresh fruit bunches (FFB) yields of 16.9 tonnes a hectare for 2018F and 19.43 tonnes for 2019F.

In line with the improved FFB yields target, it projects average CPO production cost (ex-mill) to fall from RM1,666 a tonne in 2018F to RM1,469 tonne in 2019F.

“The group has estimated that it could earn a profit before tax of RM1bil per annum, at an average CPO price of RM2,500 per tonne. It has also estimated that it could save RM150mil in 2019 from plugging leaks and addressing inefficiencies,” the research house said.