-  Maintain HOLD on Felda Global Ventures Holdings (FGV) with an unchanged fair value of RM5.05/share. Our fair value implies an FY15F PE of almost 20x.

-  FGV’s annualised core 1QFY14 results were in line with our expectations but below consensus estimates. FGV consolidated Felda Holdings Bhd’s earnings for the first time.

-  On the back of higher CPO price and Felda Holdings’ contribution, FGV’s plantation pre-tax profit (ex-fair value changes) climbed by more than 20% YoY to RM239.1mil in 1QFY14.

-  Average CPO price realised rose by 14.1% from RM2,264/tonne in 1QFY13 to RM2,584/tonne in 1QFY14. Production cost was RM1,424/tonne in 1QFY14 versus RM1,450/tonne in FY13.

-  FGV’s FFB production declined by 5.3% YoY in 1QFY14 due to the dry weather.

-  FGV’s FFB production is expected to grow by 4% to 6% in FY14F, implying that output is envisaged to recover in 2HFY14 barring unfavourable weather.

-  Pre-tax profit of the downstream division swung into a loss of RM3.8mil in 1QFY14 from RM17.2mil in 1QFY13 due to negative refining margins.

-  On a QoQ basis, pre-tax loss of the downstream division narrowed from RM48.3mil in 4QFY14 to RM3.8mil in 1QFY14 on the back of positive contribution from the fatty acid business in the US.

-  Manufacturing, logistics and others division was dragged by lower throughput handled by the logistics unit and weak fertiliser earnings. The unit’s pre-tax profit declined by 16.0% from RM66.4mil in 1QFY13 to RM55.8mil in 1QFY14.

-  Going forward, FGV is expected to hive off its non-core assets such as logistics and information technology. We reckon that the group would either dispose or list the assets separately.

-  FGV is also anticipated to acquire more agricultural assets such as plantation land bank. However, we believe that the stumbling block is pricing.

-  Recently, it was reported that FGV’s proposed acquisition of Asian Plantations Ltd (APL) is facing difficulties due to the issue of pricing. Recall that APL, which is listed on the London Stock Exchange, has a planted land bank of 13,627ha in Sarawak as at end-FY12. FGV is also in preliminary talks to acquire Kulim Bhd’s 48.97% stake in New Britain Palm Oil Ltd.

Source: AmeSecurities