Better 2020 seen for FGV on improved operations, higher palm oil price

An analyst expects FGV’s financial performance to be better with CPO price


FGV Holdings Bhd is expected to perform better this year as its oil palm operations have improved and the edible oil producer makes further progress with its restructuring, analysts said.

Last week, its chairman Datuk Wira Azhar Abdul Hamid (picture) in a seven-page letter to shareholders, stated the company is “on the right path towards a new and far better future” with operational figures to back that claim.

MIDF Research analyst Khoo Zhen Ye said the chairman’s letter showed what FGV intends to do moving forward, which is good for the company, shareholders and investors.

“Now is where the implementation part is and whether they can execute what they have pledged earlier. So far, the company has been on track. Fundamentally, you can see from the operations where it has been improving, and there is further room for improvement,” he told The Malaysian Reserve yesterday.

Khoo expects FGV’s financial performance to be better with crude palm oil (CPO) price ranging between RM2,500 and RM3,000 per metric tonne.

He expects FGV to perform better than in previous years, but its valuations remain exposed to its investment in the sugar business via loss-making MSM Malaysia Holdings Bhd.

“If MSM can offload the Johor sugar refinery to other parties or increase its utilisation rate, that will be good. The sugar business has been a drag on FGV despite the company still heavily dependent on CPO,” he said. FGV’s shares closed 0.65% or one sen lower to RM1.53 yesterday, valuing the company at RM5.58 billion.

The group has not declared a dividend since 2017. Its net loss narrowed to RM262.4 million in the third quarter ended Sept 30, 2019, from RM849.4 million a year ago.

Khoo has a ‘Neutral’ call and target price of RM1.30 on FGV. What happens at MSM could be a catalyst for a rerating of FGV, he said.

In the letter filed with the exchange on Jan 8, Azhar said the price rally in CPO provides a welcome respite to the palm oil sector as a whole.

“While this is a strong positive for FGV, the board intends to use this opportunity to build a more resilient FGV and to transform it into an organisation that is not wholly dependent on CPO price for its performance,” he stated in the letter.

Azhar acknowledged there are some challenges at MSM but noted plans are underway to address its issues.

He said the group is in the process of repositioning itself as a major player in the agriculture and food industries.

While palm oil will remain a mainstay of its business, FGV will “deliberately and carefully redeploy appropriate resources” into higher value and synergistic sectors, to mitigate CPO price fluctuation risks.

The group’s board and management have fine-tuned a three-pronged strategy, which involves restoring its palm oil businesses, developing new earning streams from the circular economy and identifying adjacencies to existing revenue streams to optimise returns.