FGV’s clarification as to the change in “mode of investment” for Eagle High points to a cessation of further talks of an acquisition. We believe this lifts the overhang of a potential pricey acquisition, so we remove our 10%-discount ascribed to our SOP-based TP, moving it to MYR1.35 (vs MYR1.20, implying 27% downside). We maintain our SELL call, as valuations remain prohibitive while earnings visibility is diminishing.

Clarification on Eagle High “mode of investment”… FGV has further clarified its previous statement that it is in discussion with the vendors for a possible different mode of investment in Eagle High, by saying that this could include, amongst others, a potential joint venture, an offtake agreement or other forms of mutually agreed collaborations.

…points to cessation of further talks of acquisition. We believe this statement could be construed as a cessation of any further talks of acquisition of Eagle High and that any future relationship with Eagle High could be just a collaborative one and one that does not include a shareholding structure change. This is positive, as it removes the overhang brought about by a potentially pricey acquisition.

Remove discount for acquisition, but still a SELL. We had previously imputed a 10% discount to our SOP-based TP to account for this overhang. With this development, we now remove the 10% discount, resulting in a hike to our TP to MYR1.35 (from MYR1.20). Despite this good news, we maintain our SELL recommendation on the stock, as current valuations continue to be prohibitive, while earnings visibility has worsened with the establishment of a trading division.

Recommendation Chart

Source: RHB Research - 2 Dec 2015