AmWatch - Felda Global : Losses in overseas downstream units HOLD, 27 May 2015

STOCK FOCUS OF THE DAY

Felda Global : Losses in overseas downstream units        HOLD

We upgrade our recommendation on Felda Global Ventures Holdings (FGV) from SELL to HOLD as its share price has fallen below our fair value. Our new fair value of RM2.18/share for FGV implies an FY16F PE of 30x. We have assumed a lower PE of 30x versus 33x previously due to the group’s weak earnings and high proportion of old oil palm trees. 

On an annualised basis, FGV’s 1QFY15 core results appear to be below our forecast and consensus estimates. However, we are keeping our earnings forecast for FGV for now due to the possibility of a turnaround in the performance of the downstream unit in the coming financial quarters. The group’s core results swung from a positive RM108mil in 1QFY14 to a negative RM44mil in 1QFY15. On a quarterly basis, FGV’s core net loss declined from RM92mil in 4QFY14 to RM44mil in 1QFY15.

FGV’s profitability was affected by the downstream and plantation divisions. Downstream unit’s pre-tax losses expanded from RM8mil in 1QFY14 to RM44mil in 1QFY15. On a quarterly basis, the division’s pre-tax losses widened from RM23.9mil in 4QFY14 to RM44mil in 1QFY15. The downstream division was dragged by losses in the crushing unit in Canada and oleochemical division in the US. The refining segment in Malaysia was also in the red in 1QFY15. Biodiesel broke-even in 1QFY15.

The plantation division’s pre-tax profit (ex-LLA changes) fell by 74.8% from RM285.2mil in 1QFY14 to RM71.9mil in 1QFY15. Lower CPO price and higher production costs affected the unit’s performance. Production cost (ex-mill) was RM1,534/tonne in 1QFY15 compared with RM1,424/tonne in 1QFY14 and RM1,432/tonne in 4QFY14. FGV’s FFB production shrank by 20.0% YoY in 1QFY15 due to the floods in the East Coast and lagged impact of the dry weather, which took place in early-FY14. FGV expects its FFB output to remain flat in FY15F.

Others :

IJM Plantations : Robust growth in FFB production in Indonesia BUY

MSM Malaysia : Margin enhancement from lower cost of raw sugar        BUY

Bonia Corporation : 9M earnings in line  HOLD

Hong Leong Bank : Retracement in quarterly earnings    HOLD

UMW Holdings : A weak start to a very tough year           HOLD

Media Sector : iflix – launch of the IPTV VOD trend in Asia?          NEUTRAL

NEWS HIGHLIGHTS

Bumi Armada : Profit rises amid more challenging market

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