‘FGV can return to the black this year’
KUALA LUMPUR: FGV Holdings Bhd will likely return to the black this year on better cost control after posting a RM1.08 billion loss last year, say analysts.
However, they warned that its shares could be downgraded if the plantation group’s earnings continued to miss estimates in the coming quarters.
FGV group chief executive officer Datuk Haris Fadzilah Hassan said on Thursday the massive loss was largely due to impairments totalling RM966 million taken on Asian Plantation Ltd, FGV Green Energy Sdn Bhd and Cambridge Nanosystems Ltd.
FGV, which saw its revenue decline 20.4 per cent to RM13.46 billion last year, had posted a RM130.93 million profit in 2017.
Kenanga Investment Bank Bhd analyst Marie Vaz has maintained a “market perform” call on FGV and raised its share price target to RM1.15 from 80 sen.
Vaz said FGV’s loss was caused by lower palm oil, rubber and sugar prices, costlier financing and higher taxes paid.
“FGV, in the hands of the new management, could return to profitability this year on better cost control. (But) if earnings continue to miss in the coming quarters, we may look to downgrade our call,” she said.
Analysts from BIMB Securities Research, MIDF Research and Affin Hwang Capital have maintained “neutral” outlook and “hold” calls on FGV, with a target price for its shares of RM1.13, RM1.06 and RM1.08, respectively.
BIMB Securities said FGV’s fourth-quarter loss was mitigated by better margin from its kernel crushing segment and an improvement in the share results from a joint venture of RM52.1 million, on the back of a RM62 million insurance claim received from Felda Iffco Gida Sanayi.
MIDF Research said FGV’s loss was attributable to weaker palm oil prices, margin erosion from costlier palm oil production and lower fruit harvests.
It said FGV last year initiated job cuts, trimming its staff strength to 18,180 from 19,000.
The group’s manpower rationalisation plan would continue this year with a further 10 per cent employee reduction to 16,300, it added.
Affin Hwang believes FGV deserved a higher price-to-earnings ratio of 32 times than the plantation sector average of 25 times because of its size, status and trading liquidity.
Meanwhile, Hong Leong Investment Bank (HLIB) downgraded FGV to “sell” from “hold”.
It is of the view that FGV shares are only worth 80 sen compared with RM1.12 currently.