FGV 9M results above forecast, CIMB Research ups target price


KUALA LUMPUR: CIMB Equities Research raised the target price for Felda Gobal Ventures (FGV) from RM1.80 to RM1.93 after the 3Q17 results were above its and Bloomberg consensus expectations.

It said on Friday FGV’s better results were due to higher logistic contribution and lower minority interest. 

“The 3Q core net profit grew significantly on-year due mainly to higher plantation contributions. We project earnings to be weaker on-quarter in 4Q due to potential voluntary separation scheme (VSS) expense of RM12mil,” it said.

CIMB Research pointed out 9M17’s core net profit of RM75mil was 84% of its full-year forecast of RM89mil and 100% of Bloomberg consensus’ (RM74mil). This was due mainly to higher-than-expected logistics contribution and lower-than-expected minority interest. 

It also said FGV declared an interim dividend of five sen, which is one sen above its expectations. 

FGV posted a net profit of RM39m/RM67m in 3Q/9M17 versus its calculation of its core net loss/profit of RM67m/RM75m in 3Q/9M17. 

“This is because our core net profit excludes fair value changes in land lease agreement (LLA) (net of tax; 9M17: RM168mil) and non-recurring items (9M17: -RM122mil) but adds back the actual payment made for LLA (9M17: RM228mil).

“The non-recurring items are (1) net impairment of receivables of RM23mil/RM61mil in 3Q/9M17; (2) provision for litigation loss of RM32.8mil in 9M17, and (3) gain from a reversal of provisions for bonuses of RM36.5mil in 9M17,” the research house said.  

Plantation earnings (excluding fair value changes in LLA) grew 248% on-year to RM211m in 3Q due to higher FFB output (+9.7% on-year) and average crude palm oil (CPO) selling prices of RM2,665/tonne (+7.5% on-year). 

Sugar contribution fell 53% on-year to RM16mil due to higher raw sugar costs locked in earlier as well as lower domestic sugar sales volumes. 

The higher plantation profit coupled with higher contribution from the logistics division led to the significant jump in 3Q17 core net profit. 

FGV reported 9.7%/3.1% on-year improvements in fresh fruit bunches (FFB) output in 3Q/9M17, which appear to be below its output growth target of 10% to 4.3 million tonnes for 2017. 

“We suspect this could be due to labour shortages at its estates in 1H as well the impact of El Nino. The group revealed that it targets to grow its FFB output by 13% to 4.85m tonnes in 2018. 

“Plans to sell non-core assets and recover losses from Gida FGV plans to complete the sale of its 16% stake in AXA Affin General Insurance by the year-end,” it said. 

CIMB Research also noted FGV’s revelation that the impairment of receivables of RM82mil came from its plantation, biodiesel and IT divisions. 

FGV plans to finalise the claims on Felda Iffco Gida Senayi by 1Q18 as the company could potentially claim up to 75% of the US$18mil to US$19mil it suffered from stock losses. 

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