INVESTMENT HIGHLIGHTS

• 1QFY17 core earnings below expectation

• Losses in the sugar division

• Better performance from the Logistics and Others division

• Earnings estimate reduced

• Maintain NEUTRAL with lower TP of RM1.59

1QFY17 core earnings below expectation. Felda Global Ventures Holdings Berhad (FGV) 1QFY17’s Core Net Profit (CNP) of RM0.5m was below expectation. Consensus was estimating full year FY17 CNP of RM151m while we are expecting CNP of RM113m. The negative deviation is caused by the unexpected loss in the sugar division.

Losses in the sugar division. Sugar division suffered Loss Before Tax of RM23m (against 1QFY16's PBT of RM62m). Note that sugar division has been adversely affected by higher average raw sugar cost and weakening Ringgit. Plantation division is close to breakeven with Loss Before Tax of RM1m due to the impairment of receivables and provision for litigation loss amounted to RM62m.

Better performance from the Logistics and Others division. The improved PBT at RM10m (against Loss Before Tax of RM11m in 1QFY16) was mainly caused by higher tonnage carried by Group’s transport operation in tandem with the increase in CPO production volumes.

Earnings estimate reduced. We are reducing FY17 CNP by 38% to RM70m (from RM113m previously) after assuming higher raw sugar prices in the sugar division.

Maintain NEUTRAL with lower TP of RM1.59 as we rollover our valuation to end FY16 Book Value. Valuation method is unchanged based on 1.0x Price to Book value. Despite the weak 1QFY17 result, we expect earnings to improve in the remaining of FY17 due to higher FFB volume. The management effort to control its cost is also commendable.

Source: MIDF Research - 1 Jun 2017