The  representative  of  the  Employees  Provident  Fund  voiced  its unhappiness over the proposed acquisition by FGV of a 37% stake in PT Eagle  High  Plantations  Tbk  (BWPT)  at  FGV’s  AGM  yesterday.  The representative  questioned  the  rationale  behind  the  proposed  acquisition and  high  premium  to  be  paid  for  the  BWPT  shares.  The  CEO  of  FGV however  defended  the  deal,  which  is  pending  an  independent  valuation and thorough due diligence, citing the young age profile of BWPT’s planted areas,  low  EV  per  planted  ha,  potential  value  accretion,  large  unplanted land bank and opportunities to tap Indonesia’s large edible oil market. (Source: The Edge Financial Daily)

Comments:  Given the high pricing  to  be paid for BWPT, potential rise in financial  leverage  and  short  term  EPS  dilution  as  well  as  lack  of management control, objections by selected institutional investors are not surprising. It remains to be seen if the proposals will be approved by FGV’s shareholders in a EGM expected to be convened in Aug15. EPF, KWAP, Lembaga  Tabung  Haji  and  FELDA  &  Subsidiary  respectively  own  5.2%, 5.3%,  7.8%  and  33.7%  of  FGV.  The  CEO  of  FGV  believes  that  if  the numbers speak for themselves and the  numbers are there,  shareholders will approve the proposals. He also added that a decision on the disposal of its loss-making downstream operations in Canada may be announced in one or two months.

We maintain our HOLD rating on FGV with a target price of RM1.92

Source: Affin Hwang Capital Research - 17 Jun 2015