ALLIANCEDBS Research is bullish on FGV Holdings Bhd
, premising its buy call on the planter’s transformation plan.
“FGV has achieved most of its targets set out in its transformation plan so far, with its target of lowering its ex-mill crude palm oil (CPO) production cost being the biggest attribute to our buy call,” AllianceDBS Research analyst Low Jin Wu said in a Dec 9 note.
FGV launched its transformation plan in December last year in a move to turn around its fortunes. Some measures include revamping top management and cost-cutting initiatives such as divesting non-core assets.
Low also expects CPO prices to pick up next year. “We believe that the recent trend in CPO prices should continue into FY20 due to the plateauing of palm oil supply… dissipation in production yields, supply disruption from El-Nino and stronger soybean prices,” he said.
Low revised upward CPO price assumptions for FY20-21F from RM2,230/2,410 per tonne to RM2,450/2,540. “FGV is the largest producer of CPO in the world and has a high operating leverage. We raise our FY20-21F earnings forecast by 31/21% and lift our target price from RM1.60 to RM1.80 based on higher CPO price expectations,” he added.
According to Bloomberg data, as of Dec 10, there are 12 analysts covering the stock with six holds, five buys and a sell. In terms of return potential, investors are expected to lose 4.8% on the stock in the next 12 months.
FGV’s share price dropped 3 sen, or 2.07%, to RM1.42 before the afternoon break on Dec 10.
