FGV’s 1HFY13  core  net  profit  came  in  above  expectations,  due  to  a positive  land  lease  liability  adjustment  of  MYR290m  in  2Q13,  as  FGV lowered  CPO  price  assumptions.  We  maintain  our  NEUTRAL  rating  on the stock, as we believe earnings are likely to be lacklustre in the near term  amid  the  current  low  CPO  price  environment.  We  raise  our  SOP-based fair value to MYR4.60 (from MYR4.34) post-earnings revision.   

- Above  expectations.    Felda Global’s 1HFY13  core  net  profit  came  in above  both  our  and  consensus  expectations,  comprising  69-77%  of FY13  forecasts.  Main  variances  include:  (i)  positive  land  lease  liability adjustment (LLA) of +MYR290m in 2Q13 bringing 1H13 to +MYR187.5m (vs our FY13 forecast of -MYR270m), which was offset by (ii) lower CPO prices of MYR2,279/tonne (vs our MYR2,400 projection), and (iii) lower-than-expected  earnings  contributions  from  its associate,  Felda  Holdings Berhad  (FHB),  due  to  losses  at  its  milling  division.  FGV  recorded  an extraordinary item (EI) loss of -MYR14.9m in 2Q13 relating to a fair value loss on forex contracts at its downstream division. No dividend has been declared yet for 1H13 (vs 5.5 sen in 1H12).  

- Key  briefing  takeaways:  (i)  Weaker  earnings  at  FGV’s  plantation division due to higher  replanting and fertiliser costs, (ii) losses at FHB’s milling division widened further, (iii) a positive LLA fair value adjustment in  2Q13  due  to  lower  CPO  price  assumptions,  and  (iv)  potential  for higher dividend in FY13.

- Upgrading  FY13  forecast.  We  revise  our  FY13  forecast  upwards  by 23%, after incorporating the positive LLA adjustment in 2Q13, but tweak our  FY14  forecast  down  by  3.4%  to  account  for  lower  associate contributions.  

- Maintain  NEUTRAL.  We  maintain  our  NEUTRAL  rating  on  the  stock, with  a  higher  SOP-based  FV  of  MYR4.60  (from  MYR4.34).  We  believe earnings are likely to be lacklustre in the near term amid the current low CPO price environment. Re-rating catalysts include: (i) the acquisition of a  larger  stake  in  FHB  –  turning  it  into  a  subsidiary,  instead  of  an associate  –  would  result  in  a  much  cleaner  and  more  transparent structure,  (ii)  the  disposal  of  its  non-core  assets  and  possibly  its  non-performing assets, which are crimping earnings, (iii) a further turnaround of  its  downstream  divisions,  and  (iv)  a  marked  improvement  in  age profile and yields upon the completion of its replanting programme.

Source: RHB