Strong 1Q22 offset by delisting concern
? FGV’s 1Q22 results were above due to better-than-expected CPO price and
production. 1QFY22 average ASP of RM5.1k/tonne vs. our RM4.1k/tonne.
? The other positive was stronger-than-expected FFB output growth of 11% in
1Q22 and lower fertilisers input (only 15% of FY22 fertilisers target applied).
? We reiterate Hold with a lower TP of RM1.69, based on lower premium to its
last offer price of RM1.30 from 50% to 30% in view of rising costs.
1Q22 beat expectations due to higher CPO price and FFB output
FGV reported a core net profit (excludes FV changes in LLA, cash LLA payments and noncore items) of RM440m in 1Q22. This is 26%/698% higher compared to RM349m/RM63m
core net profit in 4Q21/1Q21. The higher 1Q22 earnings were driven by higher CPO prices
(+59% yoy/+21% qoq to RM5,058 per tonne). The other positive is stronger-than-expected
FFB output growth of 11% yoy, beating the national average of 4% in 1Q22. Overall, FGV’s
1Q22 core net profit of RM440m was above expectations at 45% of our and 54% of
Bloomberg consensus full-year forecasts. The better results were due to higher-thanexpected CPO price. 1Q22 reported net profit of RM369m was lower compared to core net
profit of RM440m due mainly to negative fair value changes in the land lease agreement
(LLA) of RM159m against LLA cash payment of RM99m (net of tax impact).
Foreign worker coverage fell to only 64% currently vs. 68% in Feb
FGV said it has received approval to bring in 7,900 new foreign workers and targets to
receive the first batch of foreign workers by end-Jun. Its current foreign workers coverage
stands at only 64% and we gathered that the current foreign workers shortage stands at
around 12,000 workers. The group indicated that the new minimum wage of
RM1,500/month, effective 1 May, will raise its FY22 cost of production by RM50m-60m (or
RM50-60 per tonne of CPO). It also indicated that fertiliser costs will rise by 2.5x in 2022
to RM550m (or RM550 per tonne of CPO). We are positive to note that the group has
recently engaged the US CBP to provide updates on plans to improve its labour policy and
the ELEVATE assessment on its labour practices by an independent auditor, which it
hopes to complete by year end.
Uncertain if public spread issue will be addressed; retain Hold call
We raise our FY22F EPS forecast to reflect the higher CPO price but cut FY23-24F to
reflect lower sugar contribution. In view of rising estates costs as well as CPO price likely
to peak in 2022F, we have lowered the premium that we think FELDA is willing to offer for
potential privatisation attempt to 30% from 50% to FELDA’s last offer price of RM1.30. This
lowers our TP for FGV to RM1.69/share from RM1.95/share. FGV’s public shareholding
spread of 12.9% as at 25 May is not in compliance with public spread requirements of 25%.
Its major shareholder, FELDA, informed FGV on 23 Feb that it does not intend to maintain
the listing status. The extension granted by Bursa to comply with the public spread
requirement will end on 3 Aug 2022. As such, we see concerns over potential delisting risk
if this is not resolved. We see the share price supported by a potential privatisation offer