INVESTMENT HIGHLIGHTS

• 1QFY18 earnings below expectations

• Sugar division turned profitable in 1QFY18

• Logistics & Support Business is also profitable in 1QFY18

• However, plantation division earnings declined 61%

• Maintain NEUTRAL with TP of RM1.75

1QFY18 earnings below expectations. Felda Global Ventures Holdings Berhad (FGV) 1QFY18 Core Net Profit (CNP) of RM20.0m is below expectation, making up just 19%/10% of ours/consensus full year estimates. Earnings contribution from associate came in weaker than expected with RM16.2m loss. Our CNP calculation includes RM72.0m of LLA cash paid and exclude RM78.7m net LLA accounting charge, RM7.9m forex loss and RM4.1m one off items. As expected, no dividend is announced in 1QFY18.

Sugar division turned profitable in 1QFY18. Sugar division is showing turnaround in profit with PBT of RM22.0m (against 1QFY17's Loss Before Tax of 23.2m) due to lower raw material costs and favourable foreign exchange rate.

Logistics & Support Business is also profitable in 1QFY18. Same pattern is noticed for Logistics & Support Business (LSB) division with PBT of RM25.4m (against 1QFY17's Loss Before Tax of RM39.5m). We gather that LSB division benefited from higher throughput in the bulking business and increased tonnage carried by the Group’s transport operations.

However, plantation division earnings declined 61% yoy to RM18.3m. This is caused by 19% drop in CPO price to RM2472 per tonne.

Earnings estimate reduced. We cut our earnings estimate for FY18 and FY19 by 15%/13% to RM90.4m/RM101.6m respectively. We have assumed lower earnings contribution from its associate.

Maintain NEUTRAL with TP of RM1.75. Despite the reduction in earnings forecast, our TP is unchanged as it is based on 1.1x Price To Book (Mean Valuation). While the turnaround in Sugar and LSB segments is commendable, it is neutralised by lower earnings in plantation division.

Source: MIDF Research - 30 May 2018