INVESTMENT HIGHLIGHTS

• 9MFY16 earnings below expectation.

• Sugar division affected by higher raw sugar costs.

• Downstream division is at loss.

• Improved earnings from plantation division.

• Earnings estimate reduced.

• Maintain NEUTRAL with TP of RM1.77.

9MFY16 earnings below expectation. Felda Global Ventures Holdings Berhad (FGV) 9MFY16’s Core Net Loss of RM79m was below expectation. Consensus was estimating FY16 Core Net Profit of RM118m while we are expecting CNP of RM74m. The negative deviation is caused by weaker than expected earnings from the sugar division (9MFY16 PBT declined 51% yoy to RM144m) and unexpected loss in share of associated results due to stock loss of RM 57m.

Sugar division affected by higher raw sugar costs. The division’s 9MFY16 PBT decline is mainly caused by higher raw sugar costs coupled with weakening Ringgit which increased the cost of sales by +25%yoy.

Downstream division is at loss. The division registered 9MFY16 Loss Before Tax of RM7m (against PBT of RM7m in 9MFY16). We gather that the division suffered weak margins in its kernel crushing activities and higher administrative cost posted in packed product business due to new refining plant in Pasir Gudang.

Improved earnings from plantation division. Plantation division achieved RM136m of PBT in 9MFY16 representing 32% increase yoy. This is caused by the 10% increase in CPO price to RM2458/MT which has more than offset the decline in FFB volume (-14% yoy to 2.98m MT).

Earnings estimate reduced. We are now forecasting FY16 core net loss of RM67m (from Core Net Profit of RM74m previously) after assuming higher raw sugar prices.

Maintain NEUTRAL with TP of RM1.77 based on unchanged 1.0x Price to Book value. Despite the weak 3QFY16 result, we expect earnings to improve from 4QFY16 onwards due to seasonally higher FFB volume and good CPO price. The management effort to control its cost is also commendable.

Source: MIDF Research - 23 Nov 2016