FGV’s 2Q15 results disappointed again, with 1H15 results only making up 3-5% of our/cosensus FY15 forecasts. We slash our earningsestimate, and TP to MYR1.25 (from MYR1.60, 3% upside). We remain NEUTRAL, as we believe downside risks are limited from here on, unless CPO prices continue to fall. We note every MYR100/tonne change in CPO prices would impact its net profit by 4-6%.
Below expectations. Felda Global Ventures’ (FGV) 1H15 results were below expectations, at 3-5% of our and consensus FY15 forecasts. This was due to lower-than-expected FFB production (-3.3% YoY vs our -1% projection), lower-than-expected CPO prices and higher-than-expected losses at its manufacturing division as crush margins disappointed.
Despite returning to the black, 2Q15 core net profit was still down 70% YoY, while 1H15 core profit plunged 96% YoY, on a 5% drop in turnover. This was due to: i) a drop in its FFB volume of 3.3% YoY, ii) a decline in CPO prices of 14% to MYR2,263/tonne, and iii) large PBT losses of MYR93.6m at its downstream unit (after excluding the EI gainin 1Q15) and the soon-to-be disposed Canadian crushing operations.
Briefing highlights: i) its FY15 FFB production target is still flat YoY, in line with our estimate; ii ) it intends to sell its loss-making Canadian unitby year-end, which has an investment cost of MYR595m; iii) it has yet to pay the deposit for the PT Eagle High (BWPT IJ, NR) acquisition, as this is subject to approval from the Ministry of Finance and Bank Negara. The due diligence is almost completed, with no change in the completion deadline of 31 Dec; iv) FGV has ceased negotiations to change the land lease agreement (LLA) structure, given the low CPO price environment, but may revisit this if prices improve; and v) it trimmed its replanting target to 10,000ha for FY15 due to low CPO prices.
Lower forecasts. We cut our earnings forecasts by 34%, 19% and 14% for FY15, FY16 and FY17 respectively, after: i) adjusting for lower FFB production for FY16-17 to 1-1.5% (from 2-3% previously) to impute the impact of the dry spell in Sabah currently; ii) cutting our FY15F CPO price to MYR2,200/tonne (from MYR2,350); and iii) imputing higherlosses at the downstream unit. Our SOP-based TP drops to MYR1.25, post-earnings adjustments and after reducing our P/E target for its plantations unit to 17x (from 18x) to reflect the weak market sentiment and foreign funds outflow as well as iv) after imputing MSM’s (MSM MK, BUY) new TP of MYR5.90 (from MYR6.10). As FGV’s share price has already retreated significantly, we remain NEUTRAL on the stock.
Source: RHB Research - 25 Aug 2015
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