KUALA LUMPUR (May 29): Analysts are not convinced that FGV Holdings Bhd, which is expecting to bounce back in the second quarter of 2020, will be seeing clearer skies so soon, after recording a wider net loss of RM142.35 million for the first quarter ended March 31.

The wider net loss, compared to RM3.37 in the corresponding quarter a year ago, came as poor weather — particularly in Sabah where about a third of the group's estates are located — led to a 33% drop in the group's fresh fruit bunch (FFB) and crude palm oil (CPO) productions.

Although FGV expects FFB production to pick up for the remainder of the year on improved weather conditions, Kenanga Research analyst Adrian Kok said the group still lacks a catalyst.

"We see downside to management’s FFB guidance. As at 5MFY20 (the first five months of the year) FFB output is still circa 23% lower year-on-year; management’s flat FY20 FFB growth seems to be a 'best-case scenario'," he said in his note today.

Yesterday, FGV said it expects FFB output to increase to 4.5 million tonnes by year-end, from 4.4 million in 2019. This would translate to a higher yield of 18.4 tonnes per hectare, compared with about 17-odd tonnes last year.

Kok, however, prefers to adopt a more conservative stance with an FFB output forecast of 4.17 million tonnes for FY20.

This sentiment was shared by Hong Leong Investment Bank Research (HLIB), which is doubtful that FGV will achieve its earlier output guidance of 4.5 million to 4.7 million tonnes for FY20.

"We revise our FY20 forecast to a core net loss of RM196.5 million (from a core net profit of RM47.3 million earlier) and lower our FY21 core net profit forecast by 16.3% to RM54.4 million, to account for lower FFB output and higher CPO production cost assumptions," it said.

While CGS-CIMB Research believes there may be an improvement in FGV's FFB production in the coming quarters, this will be offset by lower crude palm oil (CPO) prices in 2QFY20.

The firm also expects FGV's sugar division to remain in the red in 2QFY20, as sales volume for refined sugar to the industrial segment has been hit by the Movement Control Order. "The weaker than expected FFB output and sugar earnings have led us to cut our forecast for FGV to a loss of RM85 million in FY20 forecast," it added.

AmInvest analyst Gan Huey Ling, meanwhile, is projecting that FGV would record a net loss of RM49.6 million versus a net profit of RM50.3 million originally, due to weaker FFB production growth and a larger net loss in the sugar division.

Gan has maintained a "Sell" call on FGV, with an unchanged fair value of 70 per share, which implies a price-to-book value of 0.6 times.

At 4pm, FGV shares were down 2.78% or three sen to RM1.05 apiece, with 22.6 million units done. This gave the group a market capitalisation of RM3.83 billion. Year to date, the stock's value has shrunk by 32.69%.

MIDF Research is more positive, saying FGV may be able to make a turnaround in view of the anticipated better FFB yield and CPO price, on the potential easing of lockdowns globally in the second half of the year.

It also noted that the group has already secured CPO sales for June and July delivery to India, as well as penetrating into the populous country’s food products sector through partnership with a local company to strengthen its downstream food business.

In addition, it said the higher average selling price (ASP) of refined sugar and potential higher sales volume at FGV's sugar segment would support the group’s earnings momentum as well.

"Nonetheless, we believe that the turnaround could be met with headwinds, should there be any resurgence of Covid-19 outbreak and extended lockdowns," MIDF said.

Overall, FGV has garnered three "Buy", four "Hold", two "Reduce" and two "Sell" calls from the 11 research houses that track the company.

Read also:
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