FGV (5222) - Felda Global Ventures - Positive on its plans to cut costs
Target RM2.01 (Stock Rating: REDUCE)
During a large group session at Invest Malaysia 2015, FGV's CFO shared the group’s aspiration to be a global agriculture powerhouse and targets to be among the top 5 global palm oil and rubber producers by 2020. The group also revealed its plans to cut costs, divest non-core assets, renegotiate its land lease agreement and embark on M&A that will be immediately earnings accretive. We are positive on the group's plan to reduce costs which should boost its profit over time. The group’s plans to divest assets should strengthen its balance sheet and allow it to be more focused on its core businesses. We maintain our EPS forecasts, but lower our SOP-based target price to reflect earnings risks from lower-than-expected output. We maintain a Reduce due to concerns over weak near-term earnings.
What Happened
FGV’s Group CFO, Tuan Haji Ahmad Tifli Dato’ Mohd Talha, presented to a nearly full house at a large group session during the Invest Malaysia conference today. During the session, he touched on the group's business strategy for 2015 and future plans. The group targets to be among the top five global palm oil and rubber producers and top 10 sugar producers by 2020. In 2015, the group is looking into ways to reduce non-direct costs of around RM2bn-2.5bn to improve the profitability of the group. It has also set up a trading division for its palm products to secure better pricing and market access. The group revealed that it is looking to divest non-core assets and plans to only undertake earnings accretive M&A. The group indicated that its plan to renegotiate the land lease agreement is still ongoing and it continues to pursue the 15,000 ha replanting plan for its estates despite the current low CPO prices.
What We Think
We are positive on the group’s plans to cut costs, divest non-core assets and acquire assets that will be immediately earnings accretive to the group. We estimate that for every 5% savings of total non-direct costs of RM2bn-2.5bn, the group could potentially add around RM100m–125m to its net profit. This could potentially boost its FY15 net profit by 30%. The potential sale of non-core assets could allow the group to pocket around RM300m-400m in proceeds and make some small gains.
What You Should Do
We are keeping to our earnings but lower our target price as we raise the discount to our SOP to 30% from 20% due to potential earnings risk from lower output. FGV posted a 23% drop in output for 2M15 which is below our projection of 1% growth in output for 2015.
Source: CIMB Daybreak - 24 April 2015
Target RM2.01 (Stock Rating: REDUCE)
During a large group session at Invest Malaysia 2015, FGV's CFO shared the group’s aspiration to be a global agriculture powerhouse and targets to be among the top 5 global palm oil and rubber producers by 2020. The group also revealed its plans to cut costs, divest non-core assets, renegotiate its land lease agreement and embark on M&A that will be immediately earnings accretive. We are positive on the group's plan to reduce costs which should boost its profit over time. The group’s plans to divest assets should strengthen its balance sheet and allow it to be more focused on its core businesses. We maintain our EPS forecasts, but lower our SOP-based target price to reflect earnings risks from lower-than-expected output. We maintain a Reduce due to concerns over weak near-term earnings.
What Happened
FGV’s Group CFO, Tuan Haji Ahmad Tifli Dato’ Mohd Talha, presented to a nearly full house at a large group session during the Invest Malaysia conference today. During the session, he touched on the group's business strategy for 2015 and future plans. The group targets to be among the top five global palm oil and rubber producers and top 10 sugar producers by 2020. In 2015, the group is looking into ways to reduce non-direct costs of around RM2bn-2.5bn to improve the profitability of the group. It has also set up a trading division for its palm products to secure better pricing and market access. The group revealed that it is looking to divest non-core assets and plans to only undertake earnings accretive M&A. The group indicated that its plan to renegotiate the land lease agreement is still ongoing and it continues to pursue the 15,000 ha replanting plan for its estates despite the current low CPO prices.
What We Think
We are positive on the group’s plans to cut costs, divest non-core assets and acquire assets that will be immediately earnings accretive to the group. We estimate that for every 5% savings of total non-direct costs of RM2bn-2.5bn, the group could potentially add around RM100m–125m to its net profit. This could potentially boost its FY15 net profit by 30%. The potential sale of non-core assets could allow the group to pocket around RM300m-400m in proceeds and make some small gains.
What You Should Do
We are keeping to our earnings but lower our target price as we raise the discount to our SOP to 30% from 20% due to potential earnings risk from lower output. FGV posted a 23% drop in output for 2M15 which is below our projection of 1% growth in output for 2015.
Source: CIMB Daybreak - 24 April 2015
