• The Star reported that Felda Global Ventures Holdings (FGV) may be a takeover target. Sources indicated that Sime Darby Plantation is conducting due diligence on the company. When contacted by the press however, Sime Darby Plantation said it is not doing due diligence on FGV.

• From a valuation perspective, FGV’s PE is expensive even though its share price has been falling. FGV is currently trading at FY18F PE of 86.5x and FY19F PE of 76.1x. From an asset point of view, FGV’s P/BV is 1.2x.

• FGV has gross borrowings of RM3.9bil as at end-March 2018. In addition, it has amounts owing to a significant shareholder of RM1.5bil.

• We do not think that Sime Darby Plantation is acquiring FGV anytime soon. Recently, Sime Darby Plantation indicated that it would no longer be pursuing Ruchi Soya, which is an agricompany in India as it would be challenging to take up the investment.

• We think that it would be a tall order for any acquirer to streamline FGV’s operations as in addition to the core upstream and downstream activities, the acquirer would also have to deal with the land lease agreement (LLA) between FGV and FELDA and the sugar business of MSM Malaysia.

• As at end-March 2018, the land lease liability in FGV’s balance sheet stood at RM4.4bil.

• We estimate that about 86% of FGV’s oil palm estates in Malaysia are leased from FELDA. FGV only owns about 55,297ha of oil palm estates. Including rubber plantations, FGV has 417,999ha of landbank in total in Malaysia.

• Every year, FGV pays a fixed amount of cash of RM244.2mil and 15% of the operating profit of one of its subsidiaries as “rent” for the land to FELDA.

• Maintain HOLD on FGV with an unchanged fair value of RM1.85/share.

Source: AmInvest Research - 11 Jun 2018