Is FGV on a comeback trail?

FGV Holdings Bhd has obviously demonstrated a sturdier turnaround by having posted two profitable quarters in a row although challenges still linger for the agri-business conglomerate to continue strengthening its financial footing.

MIDF Research remains cautious on uncertainties shrouding the group’s business positioning and operating model in view of the imminent termination of the Land Lease Agreement with the Federal Land Development Authority (Felda) and potential takeover of its mills.

“The group’s downstream segment could also be under pressure from lower demand for biodiesel given the wide POGO (palm oil-gas oil) spread and higher raw material costs moving forward,” the research house pointed out in a results review.

“Nonetheless, we do not discount the possibility of an execution risk which is dependent on the development surrounding the COVID-19 pandemic,” added MIDF Research.

FGV posted a second consecutive profitable quarter with a 3Q FY2020 normalised earnings of RM135.3 mil as compared to losses of RM247.1 mil in the same period a year ago driven mainly by higher crude palm oil (CPO) price of RM2,645/metric tonne (+33.0% year-on-year) and higher fresh fruit bunch production (FFB)of 1.3 million metric tonne (+9% yoy).

Cumulatively, 9M FY2020 results turned positive at RM19.0 mil due to the bump in earnings from the plantation sector and lower losses from the sugar segment.

All factors considered, the research house maintained its “neutral” stance on FGV with a higher target price of RM1.27 (from RM1.18 previously).

Meanwhile, Hong Leong Investment Bank (HLIB) Research revised its FY2020 projection for FGV to a core net profit forecast of RM46.2 mil (from a core net loss forecast of -RM135.4 mil earlier) to reflect higher palm product prices year-to-date and higher FFB output assumption.

“We raise FY2021-2022 core net profit forecasts by 8-10% to account for slightly higher FFB output and lower CPO production cost assumptions,” projected analyst Chye Wen Fei. “Note that we are maintaining our FY2021-2022 average CPO price projection for now, pending a further review.”

All-in, HLIB Research has upgraded FGV to “buy” with a higher target price of RM1.39 (from RM1.08 previously) as it raised the enterprise value/hectare valuation on FGV’s upstream plantation segment following the better-than-expected set of financial performance.

At 9.46am. FGV was flat at RM1.22 with 3.04 million shares traded, thus valuing the company at RM4.39 bil.

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