• FGV Holdings has commenced arbitration proceedings under the auspices of the Palm Oil Refiners Association of Malaysia (PORAM) against Twin Wealth Macao Commercial Offshorre Ltd.

• FGV entered into various contracts with Twin Wealth for the sale of 21,765 tonnes of RBD palm olein for a total price of US$14.6mil. To date, Twin Wealth has only paid for 2,000 tonnes of RBD palm olein with a value of US$1.4mil.

• FGV is claiming a sum of US$13.3mil (RM55.1mil) based on the debt and interest owed by Twin Wealth.

• This is negative as there could be a provision on trade receivables of RM55.1mil.

• FGV has two other contingent liabilities, which have not been recognised in the books yet.

• These are RM53mil in respect of a legal action taken against FGV by Chengdu Azonda International in China and RM23.4mil in respect of a legal action taken against FGV by Fulle Technik Sdn Bhd.

• FGV appointed Fulle Technik to develop a prototype machine known as subsoil fertiliser machine in September 2014. However, Fulle Technik said that FGV has breached its contractual obligations by appointing a third party via an open tender to build and supply the machine.

• Altogether, the contingent liabilities amount to RM131.5mil. We forecast FGV’s FY18E net profit to be RM34.5mil.

• In a previous analyst briefing, FGV said that it could be recognising impairments of RM300mil over three years.

• Maintain HOLD on FGV with a fair value of RM1.69/share.

Source: AmInvest Research - 26 Oct 2018