We expect FGV to return to profitability in FY16, on the back of lower losses at its downstream division and higher CPO prices, although this would be somewhat offset by lower FFB production due to the El-Ninoimpact. We retain our NEUTRAL recommendation with a revised SOPbased TP of MYR1.58 (3% upside). We believe its recently-proposed acquisition of a Chinese cooking oil manufacturer could be positive for earnings, although we foresee a few hurdles to be crossed before the acquisition can go through.

Expect to see a return to the black. While Felda Global Ventures’ (FGV)earnings contiue to disappoint due to unforeseen forex losses incurred at itstrading division, we believe this should dissipate given that the MYR/USD ratehas since stabilised. Going forward, we expect to see some recovery inearnings coming from higher CPO prices and lower losses at its downstreamdivision, resulting in a reversal to the black from losses in FY15. We alsohighlight the potential earnings upside should its recently-proposed acquisitionof Zhong Ling Nutri-Oils (ZLNO) pan out as expected.

Briefing highlights: i) its FY16 FFB production target is at -6% YoY, due to theEl Nino impact, ii) FGV replanted 10,000ha in FY15 and is targeting to replant16,350ha in FY16, and iii) more details on ZLNO acquisition – ZLNO’s marketshare is about 1%, although it is one of the top 10 cooking oil manufacturers inChina. FGV based its acquisition cost on a due diligence done on ZLNO’s 9M14earnings. 70-80% of ZLNO’s earnings come from the cooking oil segment,which is primarily made of peanut oil sourced locally. Net margin in 9M14 was14%, above the 13.5% achieved in FY13.

Maintain NEUTRAL. We lower our FY16-17 earnings forecasts by 6-12% and introduce our FY18 forecast. Our SOP-based TP is reduced slightly to MYR1.58(from MYR1.62). We highlight that we have taken into account the potential impact of the acquisition of ZLNO into our TP, but not in our forecasts. No change to our NEUTRAL call. Key risks include the reversal of CPO price trends and weaker-than-expected demand.

FGV’s FY15 results missed expectations, coming in at a MYR154.7m net l oss, below our MYR131.5m net loss projection. The main reason was the MYR62.9m forex losses recorded at the trading division due to the effect of the weakening MYR/USD. We have not stripped out this forex loss as an EI, as it is part of FGV’s normal daily operations, where the company hedges its purchases against its sales within a 48-hour time period. Should the exchange rate volatility be high during a 48-hour period, FGV would incur losses or gains as a result. Other than the losses incurred at this division, the other divisions recorded profits that were in line. In FY15, FGV recorded a net EI gain of MYR271.8m, which included a MYR40.8m gain on sale of joint venture (JV) companies recorded in1Q15, a MYR14.3m reversal of impairment of PPE for TRT ERGO recorded in 3Q15 and 4Q15, and a change in assumptions in LLA of MYR84.7m. FGV declared a final net DPS of 2 sen, bringing FY15 net DPS to 4 sen, or a net yield of 2.6%.