• Felda Global Ventures (FGV) has commenced legal proceedings in the Dubai court for the purpose of reviewing the claim against Safitex General Trading LLC.

• FGV is seeking a payment of US$11.7mil (RM45.2mil) together with interest of 12% annually from the date of the filing until the payment is made in full, expenses and costs incurred in respect of the legal claim.

• The date of the court hearing was not disclosed.

• 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 amount owing to FGV of US$11.7mil.

• Safitex triggered FGV's disciplinary proceedings against the CEO, CFO and two other senior management officials in relation to the breach of procedures in Delima Oil Products, 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.

• In the Bursa announcement last Friday, FGV said that a successful court outcome may reverse the impairment charge. ? However, an unfavourable outcome may result in further losses to FGV. We believe that FGV would have to record more impairments and pay Safitex's legal expenses if FGV loses the case.

• We are neutral on this development. Assuming FGV records the remaining impairment of RM15.6mil, this would reduce the group's FY18F net profit by 18%. Assuming there is a write-back of RM29.6mil, this would increase FGV's FY18F net profit by more than 30%.

• We think that this would be a long and drawn-out case. Maintain HOLD on FGV with a fair value of RM2.00/share.

Source: AmInvest Research - 2 Apr 2018