Investment Highlights

• We recommend a HOLD on FGV as Felda has not officially made a general offer (GO) for FGV yet. Our fair value of RM1.26/share for FGV is based on a P/BV of 1.1x on the book value of RM1.14/share as at end-FY19.
• Felda will only serve a notice of the mandatory GO when the share purchase agreements with KWAP and Urusharta Jamaah become unconditional. The completion of the share purchase agreements with KWAP and Urusharta Jamaah is subject to Felda receiving a letter of financing for the proposed acquisition and proposed general offer. This must be fulfilled within a period of three months.
• Felda’s proposed GO price of RM1.30/share values FGV at an FY21F PE of 54.5x and FY22F PE of 44.1x. Based on consensus net profit of RM147.2mil for FY21F however, the acquisition PE would be 32.2x.
• The proposed GO offers an upside of 2.4% above FGV’s closing price of RM1.27/share yesterday (8 Dec). According to Bloomberg, consensus’ fair values for FGV range from RM0.85/share to RM1.68/share. FGV’s IPO price was RM4.45/share back in 2012.
• Felda is proposing to make a GO for FGV as it has proposed to acquire a 6.1% stake in FGV from KWAP and 7.8% stake from Urusharta Jamaah at RM1.30/share. The total cost of the acquisition is expected to be RM658.0mil.
• After the acquisitions and including the other parties acting in concert with Felda , Felda Group’s stake in FGV would come up to an estimated 52.8%. This would allow Felda to consolidate FGV’s earnings and have greater control over the latter’s business policies.
• In the press release, Felda said that the proposed acquisition of the additional shares in FGV presents an opportunity for Felda to obtain statutory control of FGV to pursue its transformation plan and restructure the Felda group of companies.
• Recall that in October 2020, Felda said that it may terminate its land lease agreement with FGV and take over FGV’s palm oil mills. According to FGV, the compensation for the termination of the land lease ranges from RM3.5bil to RM4.3bil.
• Felda said that the GO for FGV will not result in a similar offer for MSM Malaysia. Hence, MSM Malaysia will not be privatised.

Source: AmInvest Research - 9 Dec 2020