PETALING JAYA: FGV Holdings Bhd is expected to post a better financial performance this year, buoyed by favourable crude palm oil (CPO) prices with a modest fresh fruit bunch (FFB) production.

       Furthermore, the anticipated higher average selling price of refined sugar and increase in the sales volume should help the planter’s listed sugar refiner MSM Malaysia Holdings Bhd to achieve a higher profit margin in the coming quarters.

       All factors considered, MIDF Research has upgraded FGV to a “buy” call with an adjusted target price (TP) of RM2.29 from RM1.33 previously. “Our revised TP implies an expected total return of 54.96%,” the research house said in its note to clients.

       MIDF Research has also changed its valuation method to a price-earnings ratio (PER) basis in view of FGV’s positive turnaround journey, after recording a loss in the first quarter (Q1) of financial year 2021 (FY21).

       It added that the PER is close to the group’s two-year historical average.

       For Q2 of FY21, FGV posted earnings of RM344.1mil, up by more than 100% year-on-year, on the back of higher margins in the plantation and sugar segments.

       MIDF Research also expects the group’s FFB production to recover in the coming quarters, given that oil palm estates nationwide have already entered a higher crop season.

       Palm oil: Felda harvest

       On MSM, the higher sales volume in the current quarter was influenced by the relaxation of the movement control order restrictions in the country.

       “Going forward, we opine that with an increasing utilisation rate at its sugar refinery in Johor, FGV could also see a gradual recovery from its sugar segment in FY21,” added MIDF Research.

       The research house has also revised upward its earnings forecast for FGV to RM391.8mil for FY21, RM315.1mil for FY22 and RM334.4mil for FY23, respectively.

       This is in anticipation of a better-than-expected financial performance from its plantation and sugar segments.

       Meanwhile, TA Securities has revised its FY21 and FY22 earnings forecasts upward by 94.1% and 48.4%, respectively.

       This is after factoring in higher-than-expected Q2 of FY21 results, new CPO price assumptions at RM3,400 per tonne for FY21 and RM3,100 per tonne for FY22, as well as lower FFB production.

       However, it has maintained a “sell” call on FGV with an unchanged TP of RM1.30, benchmarked to the previous offer price by the Federal Land Development Authority (Felda).

       TA Securities in its report noted that “there is no indication of Felda’s direction on FGV after the privatisation bid fell through.

       “However, we view that the possibility of the privatisation going through remains high, as Felda has indicated that it does not intend to maintain the listing status of FGV.”

       The research house said the FGV management expects the CPO price to remain volatile and to hover at around RM4,100–RM4,400 per tonne in Q3 of FY21.

       The group is still facing a labour shortage of about 26% of the total requirements. However, the research house noted that FGV expects the re-hiring of migrant labour to resume in 2022 after Malaysia achieves its herd immunity.

       It noted that there was slow progress in addressing the United States Customs and Border Protection’s (CBP) Withhold Release Order on FGV’s palm oil and palm products.

       To date, the group has received nine proposals from potential audit firms, which are currently being reviewed with the support of its US-based legal counsel to ensure that the audit work will meet all CBP’s expectations of a credible audit.

       The appointment is expected to be finalised by this month, said the research house.