Felda Global Ventures Holdings' (FGVH) 51%-owned sugar unit, MSM Malaysia Holdings reported its 9MFY12 earnings which came in below our and consensus estimates, accounting for only about 59% and 63% of full year forecasts respectively. The weaker results were mainly attributed to higher operating costs incurred and lower sales volume in domestic and export markets. A first dividend payment of 8sen was announced during the quarter.

Revenue (Q-o-Q: 11.9%, Y-o-Y: -2.1%). The group's sugar business, which contributes about 21% to the group‟s topline, posted lower y-o-y sales attributable to decreased sales volume for domestic and export markets despite recording higher average price during the third quarter.

Core net profit (Q-o-Q: -18.8%, Y-o-Y: -10.8%). Net profit margin was also under pressure, down to 7.0% from 7.7% and 9.7% in 3QFY11 and 2QFY12 respectively, with the higher cost of raw sugar the major factor for the compressing margins. .

Maintain NEUTRAL rating. Pending our review on the CPO outlook and pricing (with a downward bias), we retain our NEUTRAL call for FGVH with an unchanged target price of RM5.44 at this juncture. The Group‟s 3QFY12 results is slated to be announced on 30 Nov. Based on yesterday‟s closing, it provides an attractive estimated dividend yield of 3.5%.

Source: PublicInvest Research - 27 Nov 2012