DESPITE making a strong comeback in its earnings for the third quarter of the financial year 2021 (Q3’21), the looming risk of FGV Holdings Bhd being delisted in 2022 continues to affect analysts’ rating on the stock.
In Q3’21, the planter posted the highest quarterly profit since its listing, beating market expectations.
Buoyed by the bullish crude palm oil (CPO) prices, the group’s net profit jumped to RM399.39mil for the quarter under review from RM136.89mil in the same quarter last year on the back of a higher revenue of RM5.31bil.
Analysts generally are mixed on FGV’s prospects despite the commendable Q3’21 results, citing their concerns on the delisting of one of the world’s largest CPO producers from Bursa Malaysia.
Several brokerage houses also highlighted the planter’s narrowing public shareholding spread this week.
It has fallen significantly below the stock exchange’s 25% public spread requirement for a listed company.
As at Nov 25, FGV’s public shareholding spread had dropped further to 13.19% compared with 13.47% as at Aug 25, thus putting the group closer to the risk of being delisted.
While Bursa Malaysia has given the time extension until Feb 3 next year for FGV to meet with the requirement, analysts say FGV still does not seem to have a proper plan to address the shortfall in the public spread situation.
“Perhaps FGV will consider seeking for a further time extension or proposing for a lower public shareholding spread from Bursa Malaysia on this matter,” says an analyst with a local brokerage.
FGV’s controlling shareholder, the Federal Land Development Authority (Felda), has also indicated its intention of not retaining the listing status of FGV.
“The odds of delisting FGV are high, given Felda’s stated intention.
“The share price of FGV could be supported by the potential privatisation offer by Felda,” says CGS-CIMB Research.
The research house has raised its financial year 2021 (FY21)-FY23 earnings per share forecasts to reflect the higher CPO prices and milling margin for FGV.
“However, we keep our hold call on FGV given the risk of delisting,” it says.
To reflect this risk, CGS-CIMB Research has kept FGV’s target price at RM1.43.
This is a 10% premium over the last offer price of RM1.30 by Felda.
“We see the share price supported by a potential privatisation offer and forecast a 3% FY21 yield,” adds CGS-CIMB Research.
Aminvestment Research is maintaining a “sell” call on FGV with a lower fair value of RM1.20 from RM1.25 previously.
“Although FGV’s nine-month FY21 net profit exceeded our forecast and consensus estimates, we believe that it would be difficult for FGV to maintain its profitability in FY22 due to lower palm product prices and higher costs of production,” says the research firm.
On the other hand, MIDF Research has a “buy” call on FGV with a revised target price of RM2.20.
“Our target price implies an expected total return of 50.58%,” adds the research house.
“Nonetheless, moving ahead, we anticipate that the favourable CPO price will continue to generate a better financial performance for the group.”
MIDF Research also anticipates a higher average selling price for refined sugar.
The increase in the sales volume should be able to help FGV’s listed sugar refiner, MSM Malaysia Holdings Bhd, to achieve a higher profit margin in the coming quarters.
Meanwhile, TA Securities says FGV’s management expects the company’s prolonged labour shortage issue and Covid-19 pandemic disruption situation to turn around starting from Q2’22.
The group is still facing a labour shortage of approximately 30% of the total requirements.
“We also understand that FGV has appointed ELEVATE as the third party assessor to conduct an independent assessment of FGV’s operations against the 11 International Labour Organisation Indicators of Forced Labour.
“Preparatory work for the independent audit began in November and the site assessments are expected to occur in the first half of 2022, after which remediation and verification will be carried out,” it adds.
TA Securities notes that FGV plans to submit a petition for the Withhold Release Order revocation to the United States Customs and Border Protection (CBP) once the remediation has been completed and verified.
The research firm has maintained a “sell” call on FGV but with a higher target price of RM1.42.
It says, “There is no indication of Felda’s direction on FGV after the privatisation bid fell through.
“However, we view that the possibility of privatisation going through remains high, as Felda has indicated that it does not intend to maintain the listing status of FGV.”
On Thursday, FGV’s share price on Bursa Malaysia closed at RM1.46, giving it a market capitalisation of RM5.33bil.