INVESTMENT HIGHLIGHTS

• 1HFY18 core net loss of RM39.5m

• Plantation division missed its internal FFB target

• Better earnings from sugar and logistics support business

• Expect FY18 core net loss of RM72.7m

• Maintain NEUTRAL with lower TP of RM1.54

1HFY18 core net loss of RM39.5m. Felda Global Ventures Holdings Berhad (FGV) 1HFY18 Core Net Loss (CNL) of RM39.5m is below expectations. Note that consensus was expecting RM141m core net profit for FY18 while we are expecting RM80m. The negative deviation is caused by unexpected FFB volume decline of -4%yoy in 2QFY18. In our core net income/loss calculation, we have included RM155.1m of LLA cash paid and exclude RM106.9m net LLA accounting charge, RM12.7m forex loss, RM11.1m impairments and RM6.8m PPE writeoffs. As expected, no dividend is announced.

Plantation division missed its internal FFB target. The unexpected decline in 2QFY18 FFB volume has pulled down 1HFY18 FFB volume growth to only +7%yoy (against 1QFY18 +23%yoy). Note that the original target for the management in FY18 is to achieve +13%yoy FFB growth to 4.85m tonnes. We gather that the management has revised down its yield assumption to 17 tonnes per ha (from 17.5 tonnes per ha). Coupled with lower CPO price of RM2447 per tonne (-16%yoy), plantation division registered loss in 2QFY18.

Better earnings from sugar and logistics support business. Sugar segment turned profitable due to lower raw sugar cost and stronger Ringgit. Logistics and support business sector earnings also improved due to higher tonnage carried.

Expect FY18 core net loss of RM72.7m. We have now assumed FY18 core net loss of RM72.7m (against previous estimate of core net profit of RM80.4m). This is due to significantly lower FFB volume assumption. We believe that there is high chance of FGV to be in core net loss in 3QFY18 as its July FFB production has declined 22%yoy to 341,752 tonnes. For dividend, we are now estimating no dividend for FY18.

Source: MIDF Research - 29 Aug 2018