KUALA LUMPUR: FGV Holdings Bhd began the New Year on a strong note as it has gone from being Asia’s worst performer in 2018 to current best among palm oil companies in the region.
The plantation giant’s shares have jumped 39.86 per cent to end January at RM1 and skyrocketed 57 per cent from its low in the last 12 months.
FGV ended 0.50 per cent higher than Wednesday’s close of 99.5 sen.
Indonesia’s Astra Agro Lestari TBK PT ranked second with 18.39 per cent rise in January, followed by Singapore-based Indofood Agri Resources Ltd which recorded a 15.18 per cent increase.
As global investment banks updated their forecasts higher to a median of RM2,275 per tonne for 2019 from RM1,950 a week ago, most of the plantation companies recorded an increase in their share prices over the one-month period.
Out of the 13 companies, only two ended with negative returns year-to-date. They are Kuala Lumpur Kepong Bhd and Sawit Sumbermas Sarana TBK PT.
Last year, FGV was the worst performer with a negative return of 60.28 per cent. The rest also ended the year in red.
The jump in share price has prompted RHB Research to set a higher target price for FGV at RM1.20, 20 per cent higher than the last estimate.
“We believe there is still room to go, particularly as non-core disposals are announced, profit improvements resulting from cost cutting initiatives are quantified and consensus forecasts raised.
“The new management has to prove its mettle by pushing through with implementation of these targets,” the research house said in a note.
Stock market analyst Nazarry Rosli believes FGV shares may perform better this year as long as the group’s new management team kept its promises to bring it forward.
FGV’s consensus target price has now risen to 97 sen from 93 sen set two days ago. Four of 12 research firms that provided their ratings on FGV, had set FGV’s target price above the current share price level.
RHB Research said assuming all of FGV’s cost saving and production targets are met, the company should be able to save RM150 million from the total costs which include production and overheads such as procurement and staff costs.
“Nevertheless, while we are imputing the cost savings from the mutual separation scheme (MSS) into our forecasts, we are keeping our unit cost projections at a more conservative RM1,600-1,800 per tonne, given our more muted fresh fruit bunch growth projections of six to seven increase for financial year 2019 and 2020,” it said,
FGV is instituting a targeted MSS to cut 10 per cent of its non-estate workforce of 19,000.
RHB Research estimated a cost saving of between RM50 million and RM70 million by FGV from the MSS.