FGV’s transformation plan gaining momentum


FGV Holdings Bhd’s performance is set to improve under its transformation plan, as well as a turnaround in its sugar business and recovery in crude palm oil (CPO) prices.

Affin Hwang Investment Bank Bhd is optimistic that demand-supply dynamics will see CPO prices improve by next year and result in better returns for FGV. The company is also seeking to raise its fresh fruit production levels.

“We maintain our CPO average selling price assumption for 2019-2021 at RM2,050-RM2,500 per metric tonne (MT). The assumption does not take into account the impact of a possible Indian boycott on Malaysia’s palm oil products,” it said in a research note yesterday.

On a two-day visit to FGV’s Johor operation, Affin Hwang highlighted that Felda Inas Selatan’s fresh fruit bunches (FFB) yield has increased by 63% year-on-year to nine MT per hectare (ha), due to the younger trees.

“FGV has been aggressive in its replanting programme for the past five years given that most of its palm trees are older. We expect the group’s FFB production to increase between 3% and 9% to between 4.6 million MT and 4.9 million MT for 2019 to 2021,” it said.

Affin Hwang believes the group’s move to improve productivity through the introduction of block harvesting at the estates is working.

“Looking at Felda Inas Selatan’s improvement in FFB yield, this initiative has helped to increase the productivity at this estate. In our view, the next step is to bring in more mechanisation like mini-tractors and tractors with bin systems which can help to collect and transport FFB at a faster rate to the mills,” the investment bank stated.

FGV has a total landbank of 439,725ha in Malaysia and Indonesia of which 352,255ha are planted with oil palm (339,385ha), rubber (11,267ha) and others (1,603ha).

The group produces three million MT of CPO through 68 mills located in Malaysia. FGV also operates 13 bulking terminals with a capacity of one million MT.

Affin Hwang has placed a target price of RM1.05 on FGV based on an unchanged 32 times multiplier price-earnings ratio for 2020.

“Earnings at the sugar division are expected to improve in 2020E, backed by cost reduction initiatives coupled with a higher contribution from the Johor operation, as its refinery utilisation rate rose with more demand for sugar-based products,” it said.

FGV’s share price closed four sen higher to RM1.10 yesterday, giving it a market capitalisation of RM4.01 billion.