The Edge Weekly reported that Felda Global Ventures (FGV) is no longer looking to acquire a stake in Indonesia’s PT Eagle High Plantations Tbk (Eagle High). We welcome the news flow as it removes our concerns on the potential risks from the acquisition. Hence, we remove the 20% discount attached to our SOP-based valuations and we also fine tune our TP, which increases from RM1.37 to RM1.71, pegged on parity to our SOP valuations. However, our Neutral call remains unchanged.
To cap. In June last year, FGV planned to purchase a 30% stake in Eagle High for USD632m (RM2.5bn) in cash and a further 7% via an issuance of 95m new FGV shares worth USD48m (RM192m) for a total of USD680m or RM2.9bn. Since then, share price has slid from RM1.86 to as low as 1.18 due to the uncertainties over hefty valuations and potential risks arise from the acquisition. After much debates over the valuations of the deals, FGV said that it is looking at different mode of investment in Eagle High” such as joint-venture, a small investment stake or other form of mutually agreed collaboration.
2Q results might show some improvements. We expect to see improved results in the upcoming 2QFY16 compared to the first quarter attributed to the stronger CPO prices and higher FFB production. However, on the YoY basis, we think it could be relatively flat as stronger CPO prices (2QFY16: RM2,601/mt vs 2QFY15: RM2,193/mt) would offset the weaker FFB production.
Share price performed well in July. FGV’s share price has performed well since early July, rising more than 17%, supported by i) continuous buying interest from major shareholders, ii) clearer picture over the acquisition in Eagle High, iii) potential turnaround in the near-term and iv) new leadership under the president and CEO Datuk Zakaria Arshad since late-May.
No M&A activity in the pipeline. According to the guidance, the management has withdrawn the M&A team, implying that the company will only focus on the organic growth rather than merger and acquisition (M&A) activity. We are positive on the move as it gives us a firmer gauge over the company trend. Since the appointment, Datuk Zakaria has also terminated its plan to acquire Zhong Ling Nutril Oil in China.
Source: PublicInvest Research - 25 Jul 2016
FGV 5222 - FELDA GLOBAL VENTURES HOLDINGS - Not Keen On Eagle High Plantations
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