FGV reversed back to the red in 3Q15, recording substantial losses in its newly set up trading division, as well as weaker profits in its plantation division due to drought-affected productivity. Maintain Sell with lowered SOP-based TP of MYR1.20 (downside 35%). Visibility has seemingly worsened for the stock, with the establishment of a trading division, while the risk of a high-priced acquisition of PT Eagle High remains.

Below expectations. Felda Global Ventures’ (FGV) 9M15 results were below expectations, recording a core net loss of MYR155m in 3Q, bringing 9M15 core net loss to MYR146m, versus our and consensus’ FY15 forecasts of MYR130-160m net profit for FY15. This was due to lower-than-expected FFB production (-3% YoY vs our -0.9% projection)as well as losses incurred at its Trading, Marketing and Logistics (TML) division of MYR144m, MYR73.6m of which came from realised and unrealised forex losses relating to its trading activities, while some was attributed to negative margins on its refinery tolling business.

Reversing to the red. 9M core net profit reversed to the red, while revenue rose 13% YoY. Besides the trading division, there was a drop in its FFB volume of 3% YoY as well as an 11% YoY decline in CPO price.

Briefing highlights: i) its FY15 FFB production target is now at -3% YoY, while FY16 guidance is also at -3%, due to the El Nino impact; ii) management is unable to give guidance on the trading division, given that it depends on volatility of commodity prices as well as volatility of exchange rates; iii) management has assured that there will be an announcement on the outstanding PT Eagle High (BWPT IJ, NR)acquisition within the next two days; and iv) it is on track to hit its 10,000ha replanting target by year-end (9M15 completed 76%), while FY16 it is targeting to replant 16,000 ha.

Slash forecasts, maintain SELL. We slashed our earnings forecasts by >100% for FY15 to reflect a loss of MYR127m, and by 40-50% for FY16-17, after: i) adjusting for lower FFB production for FY16-17 to -3-4% from -1% to +1% previously) to impute the impact of El Nino on production; ii) imputing MSM’s latest forecasts and iii) imputing losses in the TML division. Our SOP-based TP is reduced to MYR1.20 (from MYR1.52). No change to our Sell call, as current valuations are prohibitive, while there is no earnings visibility. Things to look out for is the conclusion of the USD680m PT Eagle High acquisition (BWPT IJ, NR), which is slated to be by end-Nov 15.