Worst over for FGV, CGS-CIMB Research upgrades to Hold


  • Analyst Reports
  • Friday, 29 Nov 2019

CGC-CIMB Research projected lower core net loss in 4Q and the group to turn profitable in FY20F on the back of improved CPO prices and lower losses from its sugar division.

KUALA LUMPUR: FGV Holdings Bhd reported a lower core net loss of RM21mil in 3Q19 (vs. RM66mil loss in 2Q19), wider than CGS-CIMB Equities Research’s forecast due to higher losses from the sugar division.

It said on Friday the fresh fruit bunches (FFB) yields at its estates improved but fell short of its target.

“The group is also behind on fertiliser application at only 40%-45% of its annual requirement. As such, it may not fully benefit from the rising CPO price in 2020.

“However, the worst may be over as it had impaired RM1bil assets. Upgrade to Hold, ” it said.

CGC-CIMB Research projected lower core net loss in 4Q and the group to turn profitable in FY20F on the back of improved CPO prices and lower losses from its sugar division.

“We upgrade to Hold from Reduce and raise our SOP-based TP to RM1.33. We think the current share price has captured most of the positives from the rising CPO price and improved FFB yields, though this is offset by concerns over rising costs.

“Key upside risks are sale of MSM Johor refinery and higher CPO price. Downside risks are further impairment of assets and lower CPO price, ” it said.

Commenting on FGV’s 9M19 results, it said FGV’s 9M19 results were below its and consensus expectations.

FGV reported higher net losses after minority interests of RM262mil in 3Q19 (vs. 2Q19’s RM52m net loss), due mainly to losses from its sugar division and asset impairments totaling RM304mil recognised in 3Q19.

“Excluding the asset impairments, we estimate the group’s core net loss narrowed to RM21mil in 3Q19. Based on our record, this represents the seventh consecutive quarterly core net loss by FGV.

“We estimate the group’s 9M19 results to be below as its core net loss of RM113mil is higher than our and consensus full year net loss expectation of RM53mil and RM73mil, respectively.

The group posted lower core net loss of RM113mil in 9M19 (vs. 9M18 net loss of RM125m) as higher FFB output, improved mill utilisation rate and lower fertiliser costs helped offset the lower CPO and PK selling prices.

FGV only applied 40%-45% of its annual fertiliser requirements in 9M19 and changed the type of fertilisers applied from compound to straight fertilisers, to cut costs by RM80mil for FY19.

This, coupled with higher output, helped lower its costs of production for CPO by 22% to RM1,447 per tonne (before LLA cost).

The sugar division posted its highest quarterly loss of RM220mil in 3Q19 due to losses at its Johor refinery as it was not able to find new markets for its expanded capacity and it impaired RM145mil of its refining assets value.

“We are positive on the fact that the group has managed to grow its FFB output by 12% in 9MFY19 which is better than the industry FFB growth rate of 8% but below its target of 14% at the start of the year.

“However, we are concerned that the group may not be able to fully benefit from the better CPO price anticipated in 2020 as FFB yields may fall short of expectations due to lower fertiliser applied, ” it said.


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