Positive factors continue to boost FGV Holdings

The other positive factor was stronger-than-expected FFB output growth of 11% in 1Q22 and lower fertilisers input, which is 15% of financial year 2022 fertilisers target applied.

PETALING JAYA: FGV Holdings Bhd’s strong first quarter results for financial year 2022 (1Q22) beat market expectations, thanks to the higher crude palm oil (CPO) prices and better fresh fruit bunches (FFB) output, say analysts.

According to CGS-CIMB Research, the diversified planter’s 1Q22 average selling prices (ASP) was at RM5,100 per tonne compared with its RM4,100 per tonne projection.

The other positive factor was stronger-than-expected FFB output growth of 11% in 1Q22 and lower fertilisers input, which is 15% of financial year 2022 fertilisers target applied.

FGV reported a core net profit of RM440mil in 1Q22, which is 26% and 698% higher compared to RM349mil and RM63mil core net profit in 4Q21 and 1Q21 respectively, said the research house.

CGS-CIMB Research in its latest report has also raised FGV’s estimated FY22 earnings per share forecast to reflect the higher CPO price, but the EPS forecasts for FY23-FY24 to reflect lower contribution from its sugar unit, MSM Malaysia Holdings Bhd.

In view of rising estates costs as well as CPO prices likely to peak in 2022, the research house said: “We have lowered the premium which we think FGV’s major shareholder Federal Land Development Authority (Felda) is willing to offer for potential privatisation attempt to 30% from 50% to its last offer price of RM1.30 for FGV.”

This lowers CGS-CIMB Research’s target price (TP) for FGV to RM1.69 per share from RM1.95 per share previously.

The research house noted that FGV’s public shareholding spread of 12.9% as at May 25 is not in compliance with public spread requirements of 25%.

Felda on February 23 informed that it does not intend to maintain FGV’s listing status.

The extension granted by Bursa Malaysia to comply with the public spread requirement will end on Aug 3, 2022.

“As such, we see concerns over potential delisting risk if this is not resolved.

“We see the share price supported by a potential privatisation offer,” added CGS-CIMB Research.

Meanwhile, Kenanga Research maintained a “market perform” on FGV with a TP of RM2.30.

“Among the reasons FGV tends to trade below sector price earnings ratio are its earnings volatility and low return on equity,” it said.

The key risks include Felda returning with a higher offer price, sharper-than-expected rise or fall in CPO prices and higher or lower-than-expected cost increases.

Since its mandatory offer (MO) of FGV in January 2021, Felda’s holdings in FGV have since risen from 51% to 80%, hence the listing requirement for public investors to have at least 25% shareholding in FGV is no longer met.

As FGV is now trading above RM1.30, Felda has sought to extend the MO several times and the latest extension is till Aug 3, 2022.

“Felda can raise the offer price, sell down 5% to meet Bursa’s requirement or, more likely, continue to extend the MO,” opined Kenanga Research.

Meanwhile, Hong Leong Investment Bank (HLIB) Research has raised FGV’s FY22, FY23 and FY24 core net profit forecasts by 55.7%, 3.9% and 4.6% respectively.

This is mainly to account for higher CPO price assumption, higher production cost arising from higher fertiliser cost and minimum wage hike as well as lower earnings assumptions at MSM.

Post earnings revision, HLIB Research maintained a “buy” call on FGV with a higher TP of RM2.53.

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