FGV (5222) : Felda Global Ventures - First quarterly loss since listing
Target RM3.28 (Target: REDUCE)
FGV posted its first quarterly net loss of RM12m since listing, disappointing our FY14 net profit forecast and consensus. 9M14 core net profit accounted for only 69% of our and 53% of consensus full-year forecasts. The key culprits were the huge losses posted by its downstream division and higher charges due to FV changes in LLA liability. We cut FY14-16 EPS by 5-17% and SOP-based target price to reflect the weak 3Q results. We also downgrade the stock from Hold to Reduce due to the possible de-rating catalysts of earnings risks from lower CPO price and the acquisition of Asian Plantations.
3Q14 results highlights
FGV posted its first quarterly core net loss of RM12m, mainly due to the RM117m loss incurred by its downstream business, lower sugar contribution and higher fair value (FV) losses due to changes in land lease agreement (LLA) liability. The downstream losses were partly due to unrealised losses of RM52m from the commodity contracts in the Canadian business and losses from its refining division. Its sugar subsidiary, MSM, posted a 35% yoy decline in 3Q14 net profit due to rising competition from cheaper imported refined sugar in the industrial segment of the domestic market. The group’s 9M14 core net profit fell 40% yoy, as the additional contributions from its newly-acquired assets were insufficient to offset the poorer performance of certain key business divisions.
FGV’s 3Q14 performance compared to industry
FGV posted a 3% yoy rise in 3Q14 FFB output, which we consider to be below the country’s achievement of 3% increase during the same period. This is because FGV has added around 5% of additional mature palm oil area from the acquisition of Pontian United Plantations (PUP) in 4Q13. The downstream unit sank into heavier losses in 3Q due to the losses from its refining and Canadian operations (much worse than those of its peers).
Commodity losses may reverse in 4Q
During its teleconference, management explained that the losses from its commodity contracts were the main reason for its downstream losses. We gathered that the losses were partly unrealised and may reverse in 4Q14. However, the reversal amount depends on the commodity prices at end-4Q14. This fails to excite us, as we are concerned about the possible earnings dilution from its recent acquisition of Asian Plantations.
Source: CIMB Daybreak - 28 November 2014
Target RM3.28 (Target: REDUCE)
FGV posted its first quarterly net loss of RM12m since listing, disappointing our FY14 net profit forecast and consensus. 9M14 core net profit accounted for only 69% of our and 53% of consensus full-year forecasts. The key culprits were the huge losses posted by its downstream division and higher charges due to FV changes in LLA liability. We cut FY14-16 EPS by 5-17% and SOP-based target price to reflect the weak 3Q results. We also downgrade the stock from Hold to Reduce due to the possible de-rating catalysts of earnings risks from lower CPO price and the acquisition of Asian Plantations.
3Q14 results highlights
FGV posted its first quarterly core net loss of RM12m, mainly due to the RM117m loss incurred by its downstream business, lower sugar contribution and higher fair value (FV) losses due to changes in land lease agreement (LLA) liability. The downstream losses were partly due to unrealised losses of RM52m from the commodity contracts in the Canadian business and losses from its refining division. Its sugar subsidiary, MSM, posted a 35% yoy decline in 3Q14 net profit due to rising competition from cheaper imported refined sugar in the industrial segment of the domestic market. The group’s 9M14 core net profit fell 40% yoy, as the additional contributions from its newly-acquired assets were insufficient to offset the poorer performance of certain key business divisions.
FGV’s 3Q14 performance compared to industry
FGV posted a 3% yoy rise in 3Q14 FFB output, which we consider to be below the country’s achievement of 3% increase during the same period. This is because FGV has added around 5% of additional mature palm oil area from the acquisition of Pontian United Plantations (PUP) in 4Q13. The downstream unit sank into heavier losses in 3Q due to the losses from its refining and Canadian operations (much worse than those of its peers).
Commodity losses may reverse in 4Q
During its teleconference, management explained that the losses from its commodity contracts were the main reason for its downstream losses. We gathered that the losses were partly unrealised and may reverse in 4Q14. However, the reversal amount depends on the commodity prices at end-4Q14. This fails to excite us, as we are concerned about the possible earnings dilution from its recent acquisition of Asian Plantations.
Source: CIMB Daybreak - 28 November 2014
