KUALA LUMPUR, April 10 — AllianceDBS Research today upgraded FGV Holdings Bhd’s stock to a “buy,” with a new revised discounted cash flow-derived target price of RM1.75 from RM1.40 per share.
In a research note today, it said FGV’s yields and profitability are expected to be on an uptrend with the resolution of the labour issue, initiatives by the new management and improving tree age profile.
While the company expecting fresh fruit bunch (FFB) yields to grow at 12 per cent and 10 per cent for the financial year 2019 and 2020 (FY19-20F), AllianceDBS Research said its assumptions are more conservative at 10 per cent, six per cent and five per cent for FY19, FY20 and FY21, respectively.
Meanwhile, it expects crude palm oil (CPO) production to grow four per cent in both FY19 and FY20 and five per cent in FY21.
This is primarily due to lower oil extraction rate assumption forecast of 20.5 per cent, 20.6 per cent and 21 per cent for FY19, FY20 and FY21 compared to management’s estimate of 20.78 per cent and 21.18 per cent for FY19 and FY20.
“We are positive on FGV’s restructuring plan initiated by chairman Datuk Azhar Abdul Hamid and the group’s new management team.
“We expect the resolution of its labour issues, measures to reduce leakages and new planting programme to result in a significant improvement in cost efficiency, yields and profitability,” it said.
The group is one of the biggest plantation landowners in the country, yet traded at an enterprise value per ha (EV/ha) of about US$9,500 (RM38,912), a 57 per cent discount to the average EV/ha of US$22,000, which indicated a significant improvement potential, it said.
“Successful execution of operating improvements and cost-optimisation measures will boost earnings and re-rate the stock,” AllianceDBS Research added.
However, it said FGV remained susceptible to fluctuations in CPO price and the USD/MYR rate.
At 12.30 pm, FGV shares’ which rose five sen to RM1.31 sen remained as among the top actives with 49.4 million shares traded. — Bernama
