Posted by BURSAMASTER > 2015-01-13 08:42 | Report Abuse

Felda Global Ventures - Looking For A Rebound
Author: PublicInvest | Publish date: Mon, 12 Jan 17:24

Felda Global Ventures (FGVH) will likely report lower-than-expected results in the coming quarters due to the ongoing aggressive replanting exercise, as well as severe flooding in the east coastwill dampen its FFB production growth. In addition, the recent acquisitionof Asian Plantations will not yet make a significant boost to the Group's production given the young age profile and small mature planted area. We consequently lower our earnings forecast for FY14-16 by 13%-16% after reducing our FFB production estimates. Correspondingly, we also cut our TP from RM3.65 to RM2.70. We are upgrading our Neutral call to aTrading Buyhowever as we think the recent sharp correction has over-priced in all negative newsflows.

Selling pressure from substantial shareholders. The stock has been under some selling pressure recently as both Kumpulan Wang Persaraan (KWAP) and Employees Provident Fund (EPF) hadpared down their stakes in FGV. Since early-2014, they have sold down from 7.2% to 6.1% and 5.6% respectively. Foreign shareholding currently stands around9.5%.

Lowering our earnings forecasts. We reduce our earnings forecast by 13%-16% for FY14-16 after lowering our FFB production forecastby 4-5% as we expect disappointing FFB numbers for December. 11-month FFB productionhas come down by 3.1% YoY, with an expectation of a more pronounced decline in December, by more than 13% MoM. We also expect FFB production to decline by 4.5% for FY14 followed by a1% growth for this year.

Upgrade to Trading Buy but with a lower TPof RM2.70. After adjusting our earnings forecasts for the plantation arm and attaching a 10% discount on our SOP valuations due to heightening risk exposure in downstream activities, we cutour target from RM3.65 to RM2.70. We upgrade our call from Neutral to Trading Buyhowever as we think that current share price has over-priced in all negative newsflows. Over the last 2 months, it has slumped by more than 37%. Meanwhile, its downstream activities will likely face more pressure this year given the upcoming additional 30% capacity from Indonesia while oleochemical business could be further hit by weaker crude oil prices.

Source: PublicInvest Research - 12 Jan 2015