MIDF ups FGV target price on strong FFB production recovery, favourable CPO prices expected in 2H

KUALA LUMPUR (Aug 25): MIDF Research has raised FGV Holdings Bhd’s target price (TP) to RM1.22 from RM1.02 earlier, while maintaining its “neutral” rating of the counter, as it believes that the plantation player’s profitability is sustainable with a strong recovery in fresh fruit bunch (FFB) production and favourable crude palm oil (CPO) prices expected in the second half of the financial year ending Dec 31, 2020 (2HFY20).

“Moving forward, we opine that the resumption of favourable CPO prices in 2HFY20, coupled with better FFB production and a potential recovery in demand, to generate a better financial performance for the group. In addition, anticipated higher ASPs (average selling prices) of refined sugar and increases in sales volume should be able to help [its subsidiary MSM Malaysia Holdings Bhd] to further reduce its losses for 2HFY20. This is expected to bode well for FGV,” said MIDF Research analyst Khoo Zhen Ye in a note today.

Khoo said the group’s results for the second quarter ended June 30, 2020 (2QFY20) were encouraging as it returned the group to profitability, thanks to higher CPO prices at RM2,309 per metric ton, coupled with resilient FFB output.

While he noted that the group still posted losses for 1HFY20 due to a plunge in FFB production and higher cost associated with MSM’s sugar refinery in Johor in 1QFY20, he believes there will be an improvement in its 2HFY20 results, thanks to narrowing losses from its sugar segment as well as aggressive application of fertilisers, which would boost FFB production and in turn CPO sales.

Nonetheless, he said MIDF does not discount the possibility of an execution risk dependent on developments surrounding the Covid-19 pandemic.

“We are making no changes to our earnings forecasts,” said Khoo.

To recap, FGV reported a net profit of RM20.55 million for 2QFY20, versus a net loss of RM52.2 million a year earlier, thanks to an improvement in the group’s oil palm plantation operations, while its revenue rose to RM3.29 billion from RM3.28 billion.

At 11am, shares in FGV were up one sen or 0.84% at RM1.20, valuing the group at RM4.34 billion. It saw some 4.29 million shares transacted.

Source: TheEdgeMarkets