INVESTMENT HIGHLIGHTS

• 1HFY17 core earnings below expectation

• FFB production disappoints

• Sugar division still at loss

• Better performance from the Logistics and Others division

• Earnings estimate reduced

• Maintain NEUTRAL with TP of RM1.59

1HFY17 core earnings below expectation. Felda Global Ventures Holdings Berhad (FGV) 1HFY17’s Core Net Loss (CNL) of RM35.5m was below expectation. Consensus was estimating full year FY17 Core Net Profit (CNP) of RM130m while we are expecting CNP of RM70m. The negative deviation is caused by the lower than expected FFB production in FGV estates.

FFB production disappoints. Plantation division registered lower than expected FFB production in 1HFY17 (down by 3% yoy to 1.04m MT). This is caused by the slow recovery of younger age trees and labour shortages. The Group is cutting its FY17 FFB production target to 4.3m MT (from 4.5m MT).

Sugar division still at loss. Sugar division suffered 1HFY17 Loss Before Tax of RM42m (against 1HFY16's PBT of RM99m). Note that sugar division has been adversely affected by higher raw sugar cost and weakening Ringgit.

Better performance from the Logistics and Others division. The improved 1HFY17 PBT at RM5m (against Loss Before Tax of RM6m in 1HFY16) was mainly caused by higher throughput and tonnage carried by the Group’s transport operation in tandem with the increase in CPO production volumes.

Earnings estimate reduced. We are cutting FY17 CNP by 67% to RM23m (from RM70m previously) after assuming lower FFB production in the plantation division.

Maintain NEUTRAL with TP of RM1.59 based on 1.0x Price to Book value. Despite the weak 1HFY17 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 - 5 Sept 2017