PETALING JAYA: Kenanga Investment Bank Bhd has dropped its financial year 2023 (FY2023) core net profit forecast for FGV Holdings Bhd by 60% following the plantation group’s dismal performance in its first quarter.
Its net profit for the first quarter ended March 31, 2023 (Q1 FY2023) plummeted by 96.7% to RM12.09 million from RM369.24 million in the corresponding quarter a year ago.
The research house also halved its FY2024F core net profit for FGV. It now projects FGV to record a core net profit of RM349 million in FY2023 and RM439.1 million in FY2024.
Kenanga said lower margins – weighed down by high costs, muted fresh fruit bunch (FFB) production and continued losses from its sugar subsidiary – caused the stark fall in earnings.
Despite the cut in FGV’s earnings forecast, Kenanga has maintained its “market perform” call for the palm oil producer, keeping a target price (TP) of RM1.40.
FGV achieved average crude palm oil (CPO) price of RM3,988 per tonne in the first quarter, 10% lower from the previous quarter and 21% lower from the same quarter last year. This was due to the record prices last year, Kenanga said.
Meanwhile, its 51%-owned subsidiary – MSM Malaysia Holding Bhd – continued to report losses due to higher raw sugar, freight, processing costs, and retail price caps on sugar.
Going forward, Kenanga said, “CPO prices should trade range-bound (RM3,500-RM4,000 per MT) for much of 2023 on healthy demand recovery.”
It forecasts CPO prices to hover around RM3,800 and RM3,700 for the next two years.
“China, which only started relaxing its zero-Covid policy in late 2022, has been importing edible oil aggressively during the January to March quarter
“Demand from the biodiesel sector, notably in the US, Brazil and Indonesia, is another supportive factor,” it added.
Felda’s mandatory takeover offer
Parent company Federal Land Development Authority (Felda) launched an offer to take over FGV back in January 2021. At the time, Felda increased its stake to 69% or 2.51 billion shares in FGV.
Its stake has since risen to 82%. This means FGV no longer meets the 25% minimum public shareholding listing requirement, Kenanga said.
After extending the mandatory takeover offer several times, Felda failed to take over FGV in Aug 2022, it said.
Instead, FGV is proposing to issue new Islamic preferred shares to address the issue. No details are available, but it might serve to pare debts and gearing from the proceeds without diluting earnings per share, it said.
The group ended Q1 FY2023 with RM5.8 billion in net debt.
Some risks to Kenanga’s call included weather impact on edible oil and sugar supplies, unfavourable commodity prices fluctuations, and production cost inflation.
Meanwhile, RHB Investment Bank has downgraded FGV to a “sell” with a TP of RM1.20, while AmBank maintained its “hold” call with a TP of RM1.35.
At market close, FGV’s share price fell 2.24% or 3 sen to RM1.31, valuing the company at RM4.78 billion.