News According to Starbiz, speculation is rife that Felda Global Ventures (FGV) has set its sight on a major stake in New Britain Palm Oil Ltd (NBPOL). Note that NBPOL is a plantation company listed in London Stock Exchange with market cap of ~GBP610m or RM3.32b. We also gather that NBPOL owns a total of 104,900 ha of plantation land, out of which 88,000 ha is for palm oil (78,000 planted) and 16,900 ha for other purposes such as sugar cane plantation and grazing pasture.
Comments We are neutral on the news pending the actual materialisation. On the positive side, the news (if materialize) is in line with FGV Global Strategic Blueprint to expand its upstream business in palm oil and sugar plantation. However, the attractiveness of the deal will still be subjected to the actual final offer price and actual acceptance of the deal by current NBPOL shareholders.
Recall that Kulim (M) Berhad (KULIM) has previously failed to increase its stake by an additional 20% (from 48.97%) in NBPOL in Sep-2013. This is due to a restraining order imposed by Securities Commission of Papua New Guinea on KULIM from acquiring any shares in NBPOL. At that time, KULIM’s offer was made at GBP5.50 per share (against current NBPOL’s last closing price of GBP4.08 per share).
Outlook Excluding this news, we believe FGV’s Core Net Profit for FY14 should improve in line with our expectations for better CPO prices of RM2800/MT (against RM2333/MT in FY13). However, we believe its downstream division may take a longer time to turn around as it is still making losses in FY13.
Forecast Maintain FY13E-FY14E core earnings of RM925m-RM951m.
Rating Maintain MARKET PERFORM
The bright prospect from the plantation division is neutralised by concerns over its downstream operations.
Valuation Maintain TP of RM4.75 based on unchanged 18.7x Fwd. PE on CY14E EPS of 25.4 sen.
Risks Lower-than-expected CPO prices.
Worse-than-expected performance from downstream operations.
Source: Kenanga
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