FELDA’s latest move to acquire a collective 13.88% stake in FGV from KWAP and Urusharta Jamaah Sdn Bhd at RM1.30/share will result in FELDA, together with the PACs collectively owning more than 50% stake in FGV, which has in turn triggered a mandatory take-over offer (MO) for the remaining shares it does not own at RM1.30/share. We note the MO price of RM1.30/share (vis-à-vis our SOP-derived TP of RM1.39) does not reflect the improving near-term earnings prospects of the company (arising from rising CPO price since 3Q20). Maintain earnings forecasts, SOP-derived TP of RM1.39 and BUY rating on the stock

NEWSBREAK

Mandatory take-over offer at RM1.30/share. Federal Land Development Authority (FELDA) had on 8 Dec 2020 entered into a conditional share purchase agreement to acquire a collective 13.88% stake in FGV (or 250.85m shares) from Kumpulan Wang Persaraan (KWAP) and Urusharta Jamaah Sdn Bhd at RM1.30/share. Upon completion of the shares acquisition, FELDA, together with the persons acting in concert (PACs), will collectively own more than 50% stake in FGV, which has in turn triggered a mandatory take-over offer (MO) for the remaining shares it does not own at RM1.30/share (represents a 2.7% premium to its closing share price). We note the move will not result in a MO by FELDA to acquire the remaining shares in MSM Malaysia.

Rationale. The latest move represents an opportunity for FELDA to obtain statutory control of FGV together with the PACs in order to pursue its transformation plan (which potentially involves terminating the LLA with FGV and taking over the related palm oil mills) and restructure FELDA and its related companies to strengthen its core business in the plantation sector.

HLIB’s VIEW

MO price is lower than our SOP-derived TP of RM1.39. We feel that the MO price of RM1.30/share (vis-à-vis our SOP-derived TP of RM1.39) does not reflect the improving near-term earnings prospects of the company (arising from rising CPO price since 3Q20).

Forecast. Maintain. Note that our projected core net profits of RM93.0m, RM117.0m and RM121.4m in FY20-22 is based on CPO price assumption of RM2,700/tonne.

Maintain BUY; TP: RM1.39. We maintain our BUY rating with an unchanged SOPderived TP of RM1.39 (see Figure #1).

Source: Hong Leong Investment Bank Research - 9 Dec 2020