Period

4Q15/FY15

Actual vs. Expectations

Felda Global Ventures (FGV)’s FY15 core net loss (CNL*) of RM180m was below consensus (RM1.9m) and missed our forecast (RM16m). This was largely due to weaker upstream performance on lower CPO prices (-8% to RM2,210/metric ton (MT)) and lower FFB production (-7% to 4.63m MT) as well as trading division losses (FY15 LBT: RM94m) on forex volatility.

Dividends

A final dividend of 2.0 sen was announced, raising FY15 DPS to4.0 sen which is above our 3.0 sen forecast.

Key Results Highlights

YoY, FY15 CNL was mainly due to weak Plantation upstream performance as mentioned above. Downstream segment’s losses reversed to RM9m PBT on a switch to toll manufacturing. Trading division performed poorly on RM66m realised forex loss and negative refining margins.

QoQ, FGV reversed its losses as Palm upstream performance improved 6.2x on LLA credit (RM5m vs. RM81m 3Q15 charge). Trading division losses also narrowed to RM14m on slight forex gains (RM10.1m) but margins remained weak.

Outlook

We gather that the Eagle High deal remains under discussion, which could continue to depress investors’ sentiment. However, management mentioned that the recent Zhongling acquisition will be the key focus for now, which we view more positively as it is an earnings-accretive acquisition.

Meanwhile, although rising CPO prices bode well for near-term earnings, we think the main margin risk remains with the Trading division where earnings are volatile due to a strong association with forex movement.

Change to Forecasts

FY16E CNP reduced by 10% as we reduce FFB production growth to -6% in line with management outlook. Zhongling’s earnings contribution is also imputed into our forecast (refer to our report on 29- Feb-16).

We also introduce our FY17E CNP of RM193m.

Rating

Reiterate UNDERPERFORM

Earnings upside on rising CPO prices is limited by a negative FFB growth outlook, compared to the sector average of +6%.

Valuation

We lower our TP to RM1.32 (previously RM1.47) due to lowered Fwd. EPS of 6.5 sen (from 6.9 sen). Our applied Fwd. PER is unchanged at 20.5x or - 2.0SD which we think is justified by negative FFB growth, higher Trading division risk, and dampened investors’ sentiment from the Eagle High deal.

Risks to Our Call

Higher-than-expected CPO prices and FFB volume.

Higher-than-expected earnings from non-plantation divisions.

Source: Kenanga Research - 1 Mar 2016