- We are maintaining Felda Global Ventures Holdings (FGV) as a SELL with a lower fair value RM2.45/share versus RM2.50/share previously.

- We have slashed FGV’s FY15F EPS to account for lower plantation and downstream profit margins. FGV’s fair value implies an FY15F PE of 40x.

- FGV’s FY14 core results were below our forecast and consensus estimates. FGV recorded a core net loss of RM92mil in 4QFY14 versus a profit of RM3mil in 3QFY14.

- The group was affected by losses in the downstream division. Also, FGV’s plantation division did not perform well in 4QFY14 due to a 13% QoQ fall in CPO production and higher production cost per tonne.

- Downstream unit recorded a pre-tax loss of RM22.5mil in 4QFY14. For the full year, the pre-tax loss widened to RM125.2mil from RM52.5mil in FY13 due to negative palm refining margin of RM50/tonne in Malaysia and weak soybean crushing margin in Canada. Crushing margin was C$10/tonne in FY14 versus C$29/tonne in FY13. Management expect downstream losses to decline in FY15F.

- In the plantation division, production cost per tonne was RM1,432 in 4QFY14 versus RM1,261 in 3QFY14. We believe that FGV’s production cost rose in 4QFY14 due to consolidation of the loss-making Asian Plantations Ltd in November 2014.

- FGV did not recognise any flood-related expense in FY14. We understand that these would only be recognised in FY15F. Previously, FGV said that the cost of damages was about RM23mil. The floods partly resulted in a 6.4% QoQ contraction in FGV’s FFB production in 4QFY14. For the full year, FGV’s FFB output shrank by 1.7%.

- FGV’s FFB production is expected to be flat in FY15F.

- Average CPO price realised was RM2,410/tonne in FY14 versus RM2,333/tonne in FY13. Average CPO price realised inched down from RM2,317/tonne in 3QFY14 to RM2,154/tonne in 4QFY14. FGV’s production cost (ex-mill) was about RM1,397/tonne in FY14 against RM1,457/tonne in FY13.

- FGV is mulling a few M&A proposals. The group still has IPO proceeds of RM446mil left. FGV hopes to announce the proposals by 2QFY15. Due mainly to its acquisition of Asian Plantations Ltd, FGV has swung into a net debt position of RM1.2bil as at end-FY14 (including loan due to ultimate holding company).

Source: AmeSecurities