CIMB: FGV earnings upside seen if transformation successfully executed

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KUALA LUMPUR (Jan 15): CIMB Research said today there could be upside to its FGV Holdings Bhd earnings projection if the plantation group's transformation plan is successfully executed.

CIMB analyst Ivy Ng wrote in a note today that the research firm is positive on FGV's aggressive key performance indicators that were set to turn the group's operations and performance around.

"However, this is offset by our concerns of higher labour costs, potential provisions for its 50%-investment in Trurich (Resources Sdn Bhd) and rightsizing its manpower, as well as rising competition for its sugar refining business. We maintain our hold rating and TP (target price) of 92 sen (10% discount to sum-of-parts)," Ng said.

At Bursa Malaysia today, FGV shares were traded 5.5 sen higher at 87.5 sen at 11:34am with some 16 million units traded.

Ng said CIMB will turn more positive on FGV when CIMB sees evidence of FGV's operational turnaround outstripping the research house's concerns.

"We estimate 4Q core earnings (excluding fair value of land lease agreement) remaining weak, in view of the lower average CPO (crude palm oil) price in 4Q18 of RM1,902/tonne vs. 3Q18's RM2,192 per tonne," Ng said.

CIMB's note today followed FGV chairman Datuk Wira Azhar Abdul Hamid's letter yesterday to FGV shareholders, which the group filed with Bursa.