FGV Holdings (FGV) has formed a joint-venture (JV) with Qatar-based Baladna and Touch Group Holdings S/B to develop an RM4.5bn integrated dairy farm business in Chuping, Perlis. The project is expected to be commercially operational by 2025, with an aim of producing 100m litres of fresh milk annually within the first three years, and is expected to reach 300m litres of fresh milk in 10 years. It remains unclear over the valuation given the sketchy information on the earnings contribution however. Meanwhile, the Group is scheduled to announce its 2QFY22 results on 30th Aug. Maintain Neutral with an unchanged TP of RM1.61.

• Salient details of the JV. FGV, via its wholly-owned FGV Integrated Farming Holdings S/B, will own a 40% stake in the JV company while Baladna and Touch Holdings S/B will own 40% and 20%, respectively. The JV is expected to have a total funding of up to RM4.5bn, where 70% will be funded via external financing and 30% shall be funded via capital injection from the parties, in cash. There will be a dividend payout policy of at least 50% from the profit made by the JV company. FGV will subscribe for its portion of the shares worth RM1.8bn via a combination of cash and asset injection of the 3,259ha Chuiping Agro Valley in Perlis (net book value is RM78m as of end-2021). In-short, FGV is expected to contribute about RM1.7bn cash, which will see its balance sheet geared up. Current net debt position is RM2.4bn, or a net gearing level of 33.3%.

• A long-term project. The conditional shareholders’ agreement is expected to be concluded by 3Q 2023m with the project expected to be commercially operational by 2025 with an aim of producing 100m litres of fresh milk annually within the first 3 years, and is expected to reach 300m litres of fresh milk in 10 years. It is worth noting the largest local dairy farm player, Farm Fresh, processes about 105m litres a year. The proposed JV is subject to shareholders’ approval at an extraordinary general meeting.

• Background of JV partners. Baladna is the largest dairy company in Qatar with over 250 stock keeping units and has achieved 100% self sufficiency for fresh milk in Qatar. Baladna, being the strategic partner, will provide dairy farming technology and expertise to the JV company. On the other hand, Touch Group is involved in various business activities, including consulting services, property management, agriculture and farming, security services and hospitality management, construction, tourism, food and beverages, security and information and communications technology.

• Privatization still on the cards? FGV’s largest shareholder, FELDA, has been mopping up shares in the open market over the last one month. It now owns about 81% in the company, which is short of 9% to trigger a compulsory takeover offer.

Source: PublicInvest Research - 9 Aug 2022