INVESTMENT HIGHLIGHTS

• FY16 core 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

FY16 core earnings below expectation. Felda Global Ventures Holdings Berhad (FGV) FY16’s Core Net Loss (CNL) of RM157m was below expectation. Consensus was estimating FY16 CNL of RM60m while we are expecting CNL of RM67m. The negative deviation is caused by weaker than expected earnings from the sugar division (FY16 PBT declined 59% yoy to RM165m) and downstream division.

Sugar division affected by higher raw sugar costs. The division’s FY16 PBT decline is mainly caused by higher raw sugar costs coupled with weakening Ringgit.

Downstream division is at loss. The division registered FY16 Loss Before Tax of RM53m (against PBT of RM28m in FY16). We gather that the division suffered impairment on export receivables, impairment of assets and impairment due to closure of a palm oil refinery in Sabah.

Improved earnings from plantation division. Plantation division achieved RM541m of PBT in FY16 representing 15% increase yoy. This is caused by the 16% increase in CPO price to RM2560/MT which has more than offset the decline in FFB volume (-16% yoy to 3.91m MT).

Earnings estimate reduced. We are reducing FY17 CNP by 11% to RM111m (from RM125m previously) after assuming higher raw sugar prices. We also introduce FY18 Core Net Profit for RM114m.

Maintain NEUTRAL with TP of RM1.77 based on unchanged 1.0x Price to Book value. Despite the weak FY16 result, we expect earnings to improve in FY17 due to higher FFB volume. The management effort to control its cost is also commendable.

Source: MIDF Research - 1 Mar 2017