FGV’s 72%-owned unit FPI is planning to sell its 30% stake in Taiko Clay Chemical for RM145m. Upon completion of the disposal (expected by 2H18), FGV is expected to realise a one-off disposal gain of RM16.1m. We are positive on the latest development, yet is much anticipated as the move is in line with FGV’s strategy to focus on improving its core business performance and strategic divestment of non-core businesses. Maintain earnings forecasts, SOP derived TP of RM2.01, and HOLD recommendation for now, pending release of 1Q18 results (by end-May).

NEWSBREAK

FGV announced that FPI (a 72%-owned subsidiary of Felda Holdings Bhd, which in turn is a wholly-owned subsidiary of FGV) has entered into a sale and purchase agreement with Orient View Sdn Bhd to dispose its 30% stake in Taiko Clay Chemicals Sdn Bhd (TCC) for RM145m.

Background of TCC. Incorporated in 1996, TCC is involved in the businesses of: (i) manufacture and sale of bleaching earth and related products; (ii) production of sulphuric acid, oleum and battery acid; and (iii) general trading and manufacture of aluminium sulphate. TCC recorded a net profit of RM44.8m, RM49.8m and RM51.8m in 2015-2017.

Rationale. It is understood that TCC is planning to expand its businesses outside of Malaysia and such expansion plan will likely require additional capital injections from its shareholders. FGV considers the disposal as a good opportunity to monetis e its investment in TCC after taking into considerations which include, amongst others (i) TCC is a non-core business; (ii) further investments into TCC is a deviation from FGV’s current focus on its core businesses; and (iii) such expansion plan may have an immediate impact on TCC’s ability to pay dividends,.

FGV to Realise One-off RM16.6m One-off Gain From Disposal. Upon completion of the disposal (expected by 2H18), FGV is expected to realise a one-off disposal gain of RM16.1m.

HLIB’s VIEW

Positive But Not Unexpected. The latest move is in line with FGV’s strategy to focus on improving its core business performance and strategic divestment of non-core businesses.

Forecast. Maintain HOLD for now, pending release of 1Q18 results by end-May. Maintain recommendation for now, with unchanged SOP-derived TP of RM2.01

Source: Hong Leong Investment Bank Research - 15 May 2018