INVESTMENT HIGHLIGHTS

• Material litigation by Fulle Technik Sdn Bhd which is claiming for RM23.39m

• Earnings estimate maintained at this juncture

• Maintain NEUTRAL with TP of RM1.75

Material litigation. Felda Global Ventures Holdings Berhad (FGV) announced that its subsidiaries, Felda Global Ventures Research & Development Sdn Bhd (FGVRD) and Felda Agricultural Services Sdn Bhd (FAS) have been served with Kuala Lumpur High Court Writ of Summons together with a Statement of Claim on 5 April 2018 by Fulle Technik Sdn Bhd (FTSB). We gather that FTSB is claiming for a total amount of RM23.39m from FGV (full claim details in Page 2).

Background of the claim. In Sep-2014, FGVRD has appointed FTSB to develop a prototype machine known as Subsoil Fertilizer Machine (SFM). FTSB alleges that the FGVRD has (in breach of their contractual obligations) appointed a third party via an open tender to build and supply SFM. In this regard, FTSB claims RM23.39m against FGVRD and FAS.

Earnings estimate maintained at this juncture. We maintain our FY18 CNP forecast of RM106m at this juncture pending further details from FGV. The Company mentioned that the material litigation may have a material financial impact and it will make the necessary announcement on further development of the case in due course.

Maintain NEUTRAL with TP of RM1.75. We have lowered our Target Price to RM1.75 (from RM1.96) as we lower our Price to Book target to 1.10x (from 1.23x). We are now using Mean valuation (from +0.5 Standard Deviation valuation) to account for earnings risk from this material litigation. Despite the reduction in our Target Price, we do not foresee significant downside to share price as the Company has been registering core net profit in the past two quarters suggesting more sustainable earnings trend.

Source: MIDF Research - 10 Apr 2018