Felda  Global  Ventures  (FGV)  announced  that  it  had  on  31  Oct  2014 entered into  a  conditional  agreement  with Felda  IFFCO  (FISB)  for  the acquisition  of  the  entire  equity  interest  of  Felda  IFFCO  South  China (FISC)  for  RMB320m  cash  (equivalent  to  RM172.8m  at  an  exchange rate of RMB1.00=RM0.54). There are no liabilities to be assumed and the  consideration  will  be  funded  through  internally  generated  funds. Barring unforeseen circumstances, the proposed acquisition is expected to be completed by 1Q15. (Source: Bursa Malaysia)

Comments:

The seller, FISB is a 50%-owned associate. The net cash outflow hence effectively will be halved, i.e. approximately RM86.4m, which is small in relation  to  the  cash  reserve  (RM5.1bn  @  end-2Q14  and  before  the estimated RM540m for the acquisition of Asian Plantations) and asset size  of  FGV.  The  proposed  acquisition  will  however  enhance  FGV’s downstream  capabilities  in  China.

FSIC  operates  the  second  largest fractionation capacity and storage tank capacity in South China and has the third largest refining capacity in the region. No financials of FISC are provided but FGV’s downstream division recorded a PBT of RM14m in 1H14. We do not expect the proposed acquisition to have a significant impact on our FY14-16 forecasts for FGV.

Maintain our forecasts and target price of RM4.34 based 16x CY15 EPS plus  a  4.4  sen  enhancement  from  investing  its  cash  reserves.  ADD rating  is  also  maintained  pending  the  release  of  its  3Q14  results  this month.

Source: Affin Hwang Capital Research - 3 Nov 2014