INVESTMENT HIGHLIGHTS

• Focus on Strategic Plan; management free to manage the Company without political involvement

• Strong FFB growth in 1QFY18

• But 1QFY18 core net profit was affected by weak earnings from JV and associate.

• Maintain NEUTRAL with TP of RM1.75

Focus on Strategic Plan. We recently met up with Felda Global Ventures Holdings Berhad (FGV) and returned feeling positive on the Company’s long term outlook. During the meeting, we gather that FGV will remain focus on its Strategic Plan with four Strategic Thrusts (Operational Excellence, Moving Down Value Chain, Growth Through Portfolio Balancing and Optimise Financial And Human Capital).

Priorities well defined with management free to manage the Company without political involvement. For FY18, some of the key priorities are: i) 4.85m tonnes of FFB production, ii) CPO production cost of RM1562 per tonne, iii) replanting target of 15,000 ha and iv) commence operation of Johor sugar refinery by mid-2018. Most importantly, we believe that the management will be free to manage the Company without political influence. According to New Straits Times, FGV President and CEO Datuk Zakaria Arshad said that "GLCs like FGV would be free to act accordingly without political involvement" after a meeting with the Council of Eminent Persons at Ilham Tower.

Strong FFB growth in 1QFY18. FGV achieved FFB production of 0.99m tonnes in 1QFY18 or 20% of full year target of 4.85m tonnes. Against 1QFY17, this represents an improvement of 23% yoy as FGV estates improve its operation. Overall, we believe that FGV is on track to achieve its FY18 FFB volume. Note that 1Q is seasonally the low production quarter at industry level with Malaysia 1Q production makes up only 20% of full year production in 2017.

CPO production cost of RM1728 per tonne in 1Q2018. The cost is higher than the full year target of RM1562 per tonne as more agricultural input such as manuring has been brought forward into 1Q. Hence, we believe that the cost should reduce from 2Q onwards.

Source: MIDF Research - 7 Jun 2018