FGV under selling pressure

Going downstream: The proposed acquisition of Zhong Ling Nutri-Oil is in line with FGVHB

KUALA LUMPUR: Felda Global Ventures (FGV) and its call warrants fell in active trade early Monday putting a dampener on market sentiment on worries about an internal corporate exercise and rising raw sugar prices.

At 9.20am, the FBM KLCI lost 3.17 points or 0.19% to 1,667.10. Turnover was 161.78 million shares valued at RM96.53mil. There were 123 gainers and 175 losers.

FGV fell 22 sen to RM1.98 with 16.93 million shares done. FGV call warrants C13 lost 13.5 sen to 38.5 sen and C-11 saw its price nearly halve by 11.5 sen to 13.5 sen.

FGV-C12 lost 9.5 sen to 34.5 sen and C-14 shed nine sen  to 24 sen.

CIMB Equities Research said recent news flows on FGV are likely to raise concerns among investors on potential intervention by the government in the running and decision-making of FGV and how this could affect the on-going plans by management to focus on raising yields and put M&A proposals aside. 

“FGV’s shares have appreciated 59% since 16 May 2016. In view of recent uncertainties, we downgrade the stock to Hold from Add and cut our target price to RM2.21 a share as we incorporate a 20% discount to sum-of-parts to reflect these concerns,” it said.

CIMB Research said it was negative on the proposal to set up a steering committee at FGV as it will create an additional layer of cost in the group, which FGV is working hard to cut to improve its earnings performance. 

The introduction of a steering committee, placed above the Board, will not be viewed positively by the market as the objectives of the committee may differ from that of the listed entity, which is to create value for shareholders.

“We view this as the second negative development to have affected sentiment on FGV’s shares. Last week, Deputy Minister in the PM’s Department Datuk Razali Ibrahim indicated that FGV is still negotiating the purchase of a 37% stake in Eagle High Plantations, in a written parliamentary reply. This led to a sell-down in FGV shares until FGV’s CEO clarified to the media that the group is not looking to buy into EHP.

“Our third concern is the 50% YTD jump in raw sugar prices to 22 cents a pound. This will eat into the profit margin for MSM Malaysia, 51%-owned by FGV, due to the fixed price ceiling on retail sugar prices of RM2.84/kg. We estimate that at current raw sugar prices, MSM will be barely profitable in the retail sugar segment, which makes up 38.5% of total volumes of sugar sold and this poses an earnings risks of 14% to our FY17F forecast,” it said.