• The Dubai Court of First Instance has ordered Safitex Trading LLC to pay a sum of US$11.7mil and 9% annual interest to Delima Oil Products, which is a subsidiary of FGV Holdings.

• FGV initiated legal proceedings against Safitex in April 2018. FGV sought a payment of US$11.7mil with an annual interest of 12% in its legal claim.

• Safitex was FGV’s customer in Afghanistan. Safitex entered into contracts with FGV to purchase refined palm oil and margarine. Safitex failed to pay the amounts owing to FGV of US$11.7mil.

• Safitex triggered FGV’s disciplinary proceedings against the previous CEO, CFO and two other management officials back in June 2017.

• FGV had already recorded an impairment of RM29.6mil in respect of the debts owing by Safitex in its 1QFY17 results.

• We view the order by the Dubai court positively. FGV would be able to write-back the impairment of RM29.6mil in its P&L statement. This would boost FGV’s FY19F net profit, which we forecast to be RM33.6mil currently.

• However, we are unsure if Safitex would be appealing against the court’s decision or whether the company has enough funds to pay the sum of US$11.7mil (RM47.7mil).

• If Safitex does not have enough funds to pay the sum of US$11.7mil, this means that FGV would still be unable to collect its debts and there may not be any write-back of impairment.

• Maintain SELL on FGV with a fair value of RM1.08/share.

Source: AmInvest Research - 2 Apr 2019