Journey to Wealth

Felda Global Ventures Slow recovery from tree stress

kiasutrader
Publish date: Mon, 03 Dec 2012, 10:04 AM
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Period     3Q12 and 9M12

Actual vs. Expectations     FGVH's 9M12 core net profit of RM621m* came in below the consensus and our expectations. It made up 68% of the consensus' FY12 forecast of RM916m and 65% of our forecast of RM960m.

The 9M12 FFB production of 3.46m mt was below expectation as it made up only 71% of our FY12E estimate of 4.87m mt. This could be possibly due to its slower than expected recovery from the tree stress effect due to its mature estates with estimated an average tree age of ~16.5 years old.

Dividends     No dividend was announced as expected.

Key Results Highlights    YoY, the 9M12 core net profit declined by 41% to RM621m as a result of a lower avg. CPO price of RM3,107/mt (-7%) and the smaller FFB volume of 3.46m mt (-10%). The cost of production is estimated to have increased by 10% due to the higher wage and fertiliser costs.


Outlook     The expected lower CPO prices in FY12E should cause FGVH's earnings to decline YoY. However, initiatives from the company to replant its estates with better seeds should augur well for the long term.

Change to Forecasts            We have reduced our FY12E-FY13E core net profits by 18%-17% to RM786m-RM927m after assuming lower avg. CPO prices of RM2900- RM2850 per mt (from RM2975-RM3000 per mt previously). FY12E-FY13E's FFB yields have been lowered by 4% each to 16.0mt/ha-18.0mt/ha.


Rating        Maintain MARKET PERFORM
Unexciting FY12E-FY13E earnings and the end of 6-month monatorium period for its share soon should keep the share price upside limited. However, the downside is mitigated by its high possibility of joining FBMKLCI soon.


Valuation       We have lowered our TP to RM4.40 (from RM4.65 previously) based on a Sum-Of-Parts valuation with the plantation division valued at a higher Fwd PER of 17.5x (from 15.0x previously). Our higher Fwd. PER is close to the other big-cap Malaysian listed planters, which provide a good comparison in view of the high possibility of the stock being included in the FBMKLCI soon.


Risks     Sustained low CPO prices.

Source: Kenanga
FGV (5222)
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