- Maintain HOLD on Felda Global Ventures Holdings (FGV) with a lower fair value of RM3.83/share. Our fair value implies an FY15F PE of 25x.
- We have cut FGV’s FY14F’s earnings forecast significantly to account for lower plantation margin, higher minority interest and poor FFB production. Although FGV’s core net profit climbed 73.8% YoY to RM245mil in 1HFY14, this was below consensus estimates.
- The group expects FFB production to decline 3% in FY14F due to the mild effects of El Nino. On a YoY basis, FGV’s FFB output slid 3.5% in 1HFY14. FGV’s FFB production inched up 4.6% QoQ in 2QFY14.
- Internally, FGV is assuming an average CPO price of RM2,450/tonne for FY14F. FGV realised an average CPO price of RM2,619/tonne in 1HFY14 versus RM2,279/tonne in 1HFY13. Average CPO price realised was RM2,648/tonne in 2QFY14.
- Production cost was RM1,473/tonne in 2QFY14 against RM1,424/tonne in 1QFY14.
- We understand that production cost per tonne would decline in 2HFY14 compared with 1HFY14 due to lower fertiliser costs and higher palm oil production. FGV has applied 70% of its full-year fertiliser requirement in 1HFY14.
- Downstream division swung into a pre-tax profit of RM18.2mil in 2QFY14 from a loss of RM3.8mil in 1QFY14 due to improved performance from the oleochemical unit in US.
- This coupled with positive biodiesel profits offset losses in the refining sub-segment. We understand that refining is not expected to be exciting in 2HFY14 in spite of the fall in CPO prices.
- FGV has been selling biodiesel to Europe and local oil and gas companies like Petronas and Shell for the implementation of B5 in Malaysia. Average utilisation rate of FGV’s biodiesel plant is about 85% to 90% currently.
- Manufacturing unit’s (fertiliser manufacturing, logistics and others) pre-tax profit improved by 38.9% from RM55.8mil in 1QFY14 to RM77.5mil in 2QFY14 mainly due to an RM12.6mil gain on disposal of a palm oil refinery in China.
- Replanting of 15,000ha of oil palm is expected to be on track in FY14F. The group has achieved half of its target in 1HFY14.
Source: AmeSecurities
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