- Maintain SELL on Felda Global Ventures (FGV) with an unchanged fair value of RM1.18/share. Our fair value for FGV is based on an FY16F PE of 29x. We are now forecasting that FGV will record a core net loss of RM29.3mil in FY15F instead of a profit of RM184.6mil previously.

- FGV’s 9MFY15 core earnings were poor. FGV reported a core net loss of RM193mil in 9MFY15 vs. a profit of RM249mil in 9MFY14. Core net loss was RM165mil in 3QFY15 compared to a net profit of RM16mil in 2QFY15 and a loss of RM44mil in 1QFY15.

- FGV was hit by a loss in the trading division in 3QFY15. The trading division’s loss was attributed to realised and unrealised forex losses amounting to RM73.6mil in total. The realised portion of the forex loss was RM43.1mil while the unrealised portion was RM31.5mil. We understand that the realised loss was in respect to repayment of short-term USD borrowings.

- Pre-tax profit of the plantation division fell by 74.6% YoY to RM123.9mil in 9MFY15, dragged by lower CPO price and FFB production. Average CPO price realised was RM2,235/tonne in 9MFY15 vs. RM2,506/tonne in 9MFY14. Average CPO price realised shrank by 2.7% from RM2,251/tonne in 2QFY15 to RM2,191/tonne in 3QFY15.

- Comparing 9MFY15 against 9MFY14, FGV’s FFB output fell by 6.8%. FFB production rose by 6.8% from 2QFY15 to 3QFY15. For the full year, FGV is guiding for a 2% to 3% decline in FFB production.

- Production cost (ex-mill) declined from RM1,385/tonne in 9MFY14 to RM1,370/tonne in 9MFY15. On a quarterly basis, production cost slid from RM1,402/tonne to RM1,212/tonne, supported by an increase in the volume of CPO production.

- FGV’s gross cash fell in 3QFY15. Gross cash shrank from RM2.27bil as at end-June 2015 to RM2.1bil as at end- September 2015. We believe that the cash was used mainly for working capital, new plantings and due diligence of Eagle High.

- Working capital expenses climbed from RM226.8mil in 9MFY14 to RM1.7bil in 9MFY15. FGV’s operating cash flows swung from a positive RM1bil in 9MFY14 to a negative RM965.3mil in 9MFY15.

- Going forward, FGV will be recognising an RM86.7mil gain on disposal of the soybean crushing unit in North America. The disposal is expected to be completed in 4QFY15.

Source: AmeSecurities Research - 27 Nov 2015