Investment Highlights

• Maintain HOLD on Felda Global Ventures (FGV) with a higher fair value of RM2.00/share based on 1.3x of FGV's latest book value of RM1.54/share. FGV is currently trading at an FY18F PE of 84.9x. We have raised FGV's net profit by 4.5% to account mainly for our earnings upgrade on MSM, which we did in early February.

• FGV's results were within our forecast (ex-disposal gain) but below consensus. FGV recorded a core net profit of RM59.1mil (adjusted only for land lease changes) in FY17 compared with a core net loss of RM196.2mil in FY16. FGV's FY17 core net profit of RM59.1mil was partly driven by a RM26.9mil gain on the disposal of its shareholding in AXA Affin (net profit level).

• FGV did not declare any gross DPS in 4QFY17. There is a possibility that FGV may declare dividends after its AGM in early FY18F. We forecast FGV's gross DPS to be 6 sen for FY17 (FY16: 1 sen). For FY18F, we estimate a gross DPS of 7 sen, which implies a yield of 3.5%.

• FGV recognised impairments of RM109.6mil (FY16: RM140.0mil) and a provision for litigation loss of RM32.8mil in FY17. We believe that the group did not record any impairment in 4QFY17 in contrast to the impairments of RM29.6mil recorded in 3QFY17, RM18.2mil in 2QFY17 and RM62.3mil in 1QFY17.

• FGV expects its FFB output to improve by 13.8% in FY18F vs. 8.9% in FY17. Management's guidance was 10% for FY17. FGV's FFB output declined by 3.2% in 4QFY17 compared with 3QFY17 but climbed by 26.9% compared with 4QFY16.

• Apart from seasonal factors, the improvement in FGV's FFB production in 2HFY17 was driven by an increase in the number of estate workers. About 5,347 foreign workers came onboard in October 2017. FGV has received quota for 8,000 workers. About 6,480 workers or 81% of the quota came in FY17 while the balance 19% or 1,520 are expected to come onboard in FY18F.

• Average realised CPO price rose by 9.1% from RM2,560/tonne in FY16 to RM2,792/tonne in FY17. Comparing 4QFY17 against 3QFY17, average CPO price inched up by 2.2% from RM2,665/tonne to RM2,723/tonne.

• FGV expects its production cost (ex-mill) to be stable at RM1,562/tonne in FY18F. Production cost (ex-mill) edged down from RM1,595/tonne in FY16 to RM1,592/tonne in FY17. On a quarterly basis, production cost fell from RM1,541/tonne in 3QFY17 to RM1,474/tonne in 4QFY17 as manuring and fertiliser costs declined.

• FGV's net gearing rose from 70.8% as at end-September to 75.6% as at end-December 2017. Net borrowings (including loans due to significant shareholder) increased from RM4.08bil as at endSeptember to RM4.2bil as at end-December 2017.

Source: AmInvest Research - 23 Feb 2018