Thursday 28 Mar 2024
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KUALA LUMPUR (May 29): Hong Leong Investment Bank Research (HLIB Research) has downgraded FGV Holdings Bhd to "sell" at RM1.08 with a higher target price of 89 sen (from 88 sen) and said FGV's valuation has become stretched following recent share-price run-up.

In a note today, the research house said FGV registered a core net loss of RM226.2 million for first quarter of financial year 2020 (1QFY20) (versus core net loss of RM49.9 million for 4QFY19 and core net profit of RM13 million for 1QFY19), adding that this came in worse than its and consensus full-year core net profit estimates of RM47.3 million- RM106.2 million, due mainly to lower-than-expected fresh fruit bunches (FFB) output and higher-than-expected crude palm oil (CPO) production cost.

"During the quarter, we adjusted for RM83.8 million worth of exceptional items from FGV's reported net loss. These include: (i) RM13.2 million reversal of impairment of financial assets; (ii) RM46.7 million commodity gains; (iii) RM2.7 million property, plant and equipment written off; (iv) RM6.6 million unrealised forex gain; and (v) RM27 million assumption revision in the land lease agreement," it said.

On the other hand, HLIB Research said the FFB output declined by 27% to 1.05 million tonnes in 4M20. Despite having anticipated production to pick up momentum in the next few months, management hinted that FGV will unlikely achieve its earlier output guidance of 4.5 to 4.7 million tonnes for 2020.

"We revise our FY20 forecast to a core net loss of RM196.5 million (from a core net profit of RM47.3 million earlier) and lower our FY21 core net profit forecast by 16.3% to RM54.4 million, to account for lower FFB output and higher CPO production cost assumptions," it said.

At 10.07am, FGV shed 0.93% or one sen to RM1.07, valuing it at RM3.9 billion.

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