This article first appeared in The Edge Financial Daily on May 31, 2019

FGV Holdings Bhd
(May 30, RM1.14)
Maintain neutral with a higher target price (TP) of RM1.26: FGV Holdings Bhd’s normalised profit of RM11 million for the first quarter of financial year 2019 (1QFY19) is above our expectations. This was mainly attributable to operational cost savings and higher contribution from the downstream segment. Our core earnings calculation excludes an RM86.4 million net land lease agreement accounting charge, a reversal of impairment of financial assets (net) of RM47.5 million and a foreign exchange gain of -RM3.4 million.

The plantation division grew its profit before zakat and tax (PBZT) by 110% year-on-year (y-o-y) to RM40 million despite the current weak crude palm oil (CPO) price environment. This was boosted by the downstream segment with a PBZT of RM96 million due to a higher refined, bleached and deodorised palm kernel oil margin of RM224 versus –RM51 per tonne in the prior financial period; and higher biodiesel sales up 58% y-o-y to 16,000 tonnes. In addition, the lower ex-mill CPO cost achieved at RM1,379 per tonne or -20.2% y-o-y via operational improvements also helped to partially offset a CPO price down 20% y-o-y.

The sugar division posted a loss before zakat and tax (LBZT) of RM2.9 million compared to a RM22 million profit in the previous financial period, due to a lower average selling price of refined sugar amid stiff competition and higher refining costs from the MSM Johor sugar refinery. Meanwhile, the logistics and support businesses sector registered an LBZT of RM16.8 million due to a mutual separation scheme provision and an impairment of receivables of RM25 million and RM16 million respectively.

We revised upwards our FY19 forecast core earnings to RM56.9 million in view of a lower average CPO production cost, a higher fresh fruit bunch (FFB) production growth and an improved margin at the downstream segment of the plantation sector. — MIDF Research, May 30