FGV (5222) - Felda Global Ventures - Share price rally unjustified
Target RM2.30 (Stock Rating: REDUCE)
FGV’s final core net profit came in 24% below our forecast and 38% below consensus. We attribute the weaker 4Q earnings to lower plantation and downstream contributions. Reported net profit was broadly in line with our number due to a gain from FV changes in the LLA liability and RM55m profit due to reversal of an impairment loss on a jointly-controlled entity. With the inclusion of a final 4 sen dividend, its total 10 sen dividend payout exceeds our forecast of 8 sen. We cut our core EPS by 21-25% to reflect higher estates costs and weaker downstream earnings. This cuts our SOP target price by 3 sen. We downgrade the stock from Hold to Reduce as we a view the 34% rally in its share price over the past month as unjustified given the poor results.
Return to profitability in 4Q but…
FGV rebounded to a profit of RM20m in 4Q14 from a reported net loss of RM9m in 3Q14. The better results was due to a gain of RM144m from the fair value changes in its land lease agreement (LLA) liability and a RM55m gain arising from the reversal from an impairment loss on a jointly-controlled entity. Excluding the one-off gain, the group would have booked a core net loss of RM37m in 4Q, which is worse than our forecast due to lower plantation and downstream contributions. Its plantation division posted weaker 4Q earnings due to lower CPO selling prices, lower FFB output and the reversal of a compensation income of RM75.5m due from Felda.
Key teleconference highlights
The group revealed that the gain from the FV changes in LLA was to reflect lower near-term CPO prices and planted areas following recent land survey. It estimated its CPO production cost (ex-mill) at RM1,397 per tonne for 2014 but this exclude replanting expenses of RM327m, and RM336m actual lease payments in cash to Felda in FY14. The group is looking to several acquisition targets which it hopes to complete by mid-2015. We are neutral as most of the guidance is broadly in line with earlier plans revealed by management.
Downgrade to Reduce
FGV’s share price has risen 34% over the past month. We believe the rally is unjustified in view of its poor results and the group’s expectations of another challenging year in 2015. In view of this, its rich valuation and concerns that it may lose its spot in the KLCI index, we downgrade the stock to Reduce.
Source: CIMB Daybreak - 25 February 2015
Target RM2.30 (Stock Rating: REDUCE)
FGV’s final core net profit came in 24% below our forecast and 38% below consensus. We attribute the weaker 4Q earnings to lower plantation and downstream contributions. Reported net profit was broadly in line with our number due to a gain from FV changes in the LLA liability and RM55m profit due to reversal of an impairment loss on a jointly-controlled entity. With the inclusion of a final 4 sen dividend, its total 10 sen dividend payout exceeds our forecast of 8 sen. We cut our core EPS by 21-25% to reflect higher estates costs and weaker downstream earnings. This cuts our SOP target price by 3 sen. We downgrade the stock from Hold to Reduce as we a view the 34% rally in its share price over the past month as unjustified given the poor results.
Return to profitability in 4Q but…
FGV rebounded to a profit of RM20m in 4Q14 from a reported net loss of RM9m in 3Q14. The better results was due to a gain of RM144m from the fair value changes in its land lease agreement (LLA) liability and a RM55m gain arising from the reversal from an impairment loss on a jointly-controlled entity. Excluding the one-off gain, the group would have booked a core net loss of RM37m in 4Q, which is worse than our forecast due to lower plantation and downstream contributions. Its plantation division posted weaker 4Q earnings due to lower CPO selling prices, lower FFB output and the reversal of a compensation income of RM75.5m due from Felda.
Key teleconference highlights
The group revealed that the gain from the FV changes in LLA was to reflect lower near-term CPO prices and planted areas following recent land survey. It estimated its CPO production cost (ex-mill) at RM1,397 per tonne for 2014 but this exclude replanting expenses of RM327m, and RM336m actual lease payments in cash to Felda in FY14. The group is looking to several acquisition targets which it hopes to complete by mid-2015. We are neutral as most of the guidance is broadly in line with earlier plans revealed by management.
Downgrade to Reduce
FGV’s share price has risen 34% over the past month. We believe the rally is unjustified in view of its poor results and the group’s expectations of another challenging year in 2015. In view of this, its rich valuation and concerns that it may lose its spot in the KLCI index, we downgrade the stock to Reduce.
Source: CIMB Daybreak - 25 February 2015
