- We maintain HOLD on Felda Global Ventures Holdings (FGV) with a lower fair value of RM3.60/share. Based on our latest earnings forecast, FGV’s fair value of RM3.60/share implies an FY15F PE of 26x.

- FGV’s 3QFY14 core results were below our forecast and consensus estimates. We have reduced FGV’s FY14F and FY15F earnings forecasts by 10% to 18% to account for margin erosions in the downstream division.

- FGV’s downstream division recorded a pre-tax loss of RM111.0mil in 3QFY14 compared with a pre-tax profit of RM18.2mil in 2QFY14. Pre-tax losses amounted to RM102.7mil in 9MFY14 against RM7.4mil in 9MFY13.

- The soybean crushing unit in Canada chalked up unrealised losses in commodity contracts of RM52.0mil in 3QFY14 versus a profit of RM12.8mil in 2QFY14.

- We understand that as of end-October, the unrealised losses on the contracts have reversed. In spite of this, it is difficult to say if the unit would swing into profitability in 4QFY14.

- Apart from soybean crushing, the downstream division was dragged by the palm refining unit in Malaysia. The latter continued to bleed due to high processing cost and weak demand.

- Comparing 3QFY14 against 2QFY14, plantation turnover rose by 14% as an increase in sales volume of CPO helped compensate for the 12.5% fall in average selling price. Average CPO price realised declined from RM2,648/tonne in 2QFY14 to RM2,317/tonne in 3QFY14.

- FGV expects FFB output to be flat YoY in FY14F versus the previous guidance of a negative 3%. The group’s FFB production inched down 1.2% YoY to 3.7mil tonnes in 9MFY14. On a QoQ basis, FGV’s FFB production improved 10.5% to 1.3mil tonnes in 3QFY14 in line with seasonal trends.

- FGV’s production cost (ex-mill) is expected to be less than RM1,400/tonne in FY14F. Production cost (ex-mill) was RM1,261/tonne in 3QFY14 versus RM1,473/tonne in 2QFY14. Production cost was RM1,385/tonne in 9MFY14.

- The QoQ decline in production cost per tonne in 3QFY14 can be attributed to a higher volume of CPO produced and fall in fertiliser costs. FGV had applied almost 80% of its fertiliser requirements in 9MFY14.

Source: AmeSecurities