FGV has referred the cases of suspended group president Datuk Zakaria Arshad and group chief financial officer Ahmad Tifli Mohd Talha to a domestic inquiry panel.
KUALA LUMPUR: Felda Global Venture’s (FGV) results were below expectations as 1Q17 core net profit of RM28mil accounted for just 19% of CIMB Equities Research’s full-year forecast and 16% of the consensus number.
It said on Thursday this was mainly due to unexpected losses at its sugar division, which was unable to fully pass on the higher raw sugar costs.
“Our core net profit excludes fair value of land lease agreement (LLA) charge (net of tax) (1Q17: RM74.1m) as well as non-recurring items and adds back the actual payment made for LLA (1Q17: RM76m),” it said.
CIMB Research pointed out FGV reported a net profit of RM2.1m in 1Q17, which is lower than its calculation of core net profit of RM28mil.
“This is because we have adjusted our core to reflect impairment of receivables of RM29.6m (relating to non-payment of receivables from one of its distributors for some time) and provision for litigation loss of RM32.8m (relating to palm oil shipments to Ruchi Soya) recorded by its plantation segment.
“However, this is partially offset by the gain from a reversal of provision for bonus of RM36.5m in 1Q17,” it said.
The research house said plantation earnings (ex-fair value change in LLA) jumped significantly to RM97m in 1Q17, due to higher average crude palm oil (CPO) selling price of RM3,061 (+31% year-on-year), a 3% improvement in fresh fruit bunches (FFB) output and 5% decline in its average cost of production to RM1,739 per tonne.
The sugar division posted its first quarterly loss of RM23m due to higher raw sugar costs. This, coupled with higher FV changes in LLA, led the FGV group to report a pretax loss of RM31m in 1Q17.
“FGV is targeting to grow its FFB output by 15% in 2017. However, it has only delivered 4% FFB output growth in 4M17 but remains confident of a strong pick-up in output in
2H17.
“It also plans to reduce its CPO production costs ex-mill by 9% to RM1,450 per tonne. However, 1Q cost of production was higher at RM1,739/tonne,” it said.
CIMB Research said media reports say that FELDA is open to ideas of unwinding the LLA with FGV.
“We gather that FGV prefers to maintain the LLA as the group believes the estates are an important component of the group’s business.
“We would be negative should FELDA proceed to terminate the LLA with FGV as the income from the potential RM3.8bn estimated one-off compensation may not be sufficient to offset future income loss from the estates and replanting costs of RM1.7bn incurred since FGV’s IPO,” it said.
CIMB Research cut its FY17-19F earnings by 2%-19% to reflect lower sugar contributions from MSM.
It also lowered its sum-of-parts (SOP) based target price, which is based on a 20% discount to SOP, to RM1.79 to reflect lower valuations for its sugar and plantation businesses.
It also maintained a Hold call as it believes the stock is fairly valued and is partially supported by its RM1.59 book value. Key upside and downside risks are higher- and lower-than-expected CPO prices.
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