FGV (5222) - Felda Global Ventures - Cheap for a reason
Target RM2.33 (Stock Rating: HOLD)
We upgrade our rating for FGV to Hold from Reduce as we see limited downside for the stock from current levels, with the market already valuing its plantation estates at below the replacement cost of new planting. Its move to sell non-core assets will help improve sentiment. However, the stock is unlikely to rerate significantly as 4Q’s earnings are likely to remain weak and could come in below consensus. On top of this, the stock may lose its position in the FBM KLCI due to its lower market capitalisation. We cut our FY14-16 earnings by 4-7% to reflect the losses from the floods and Asian Plantations, and lower our SOP-based target price by 20%.
However, the stock is unlikely to rerate significantly as 4Q’s earnings are likely to remain weak and could come in below consensus. On top of this, the stock may lose its position in the FBM KLCI due to its lower market capitalisation. We cut our FY14-16 earnings by 4-7% to reflect the losses from the floods and Asian Plantations, and lower our SOP-based target price by 20%.
Market priced in concerns
FGV’s share prices has fallen 42% since the company announced its acquisition of Asian Plantations Ltd for RM628m and reported its first quarterly loss since listing in 3Q14. This has led some investors to pare down their stakes. The collapse in its share price has knocked off RM6bn market capitalisation from the stock. We believe the drop has sufficiently priced in the concerns as the market is only valuing its leased estates from the government at RM8,304 per ha, which is below replacement cost.
Focus for 2015
The group plans to focus on disposing its non-core assets in 1H15 and has set up several initiatives to reduce costs and improve the selling price achieved for its palm products. The group will consider selling its Canadian downstream assets, which have been posting losses in 9M14, if a good offer comes along. We view this positively as it will help improve earnings and balance sheet strength.
Future M&A may require external funding
We gather that the group is still keen on expanding its business via M&A but will be more selective now given that it has utilised 90% of its RM4.5bn IPO proceeds. Any future significant M&A may require funding through equity raising and bank borrowings. We estimate the net gearing of the group at 0.1x post its acquisition of Asian Plantations.
Cutting earnings and TP
We have revised down our FY14-16 earnings estimates by 4-7% to reflect the production losses from the floods in Dec and some losses from Asian Plantations. Based on this, we project the group report a net profit of RM12m in 4Q. Our target price which is based on a 20% discount to SOP has been cut to RM2.33 as we lower its asset valuations in line with the weaker earnings prospects.
Source: CIMB Daybreak - 27 January 2015
Target RM2.33 (Stock Rating: HOLD)
We upgrade our rating for FGV to Hold from Reduce as we see limited downside for the stock from current levels, with the market already valuing its plantation estates at below the replacement cost of new planting. Its move to sell non-core assets will help improve sentiment. However, the stock is unlikely to rerate significantly as 4Q’s earnings are likely to remain weak and could come in below consensus. On top of this, the stock may lose its position in the FBM KLCI due to its lower market capitalisation. We cut our FY14-16 earnings by 4-7% to reflect the losses from the floods and Asian Plantations, and lower our SOP-based target price by 20%.
However, the stock is unlikely to rerate significantly as 4Q’s earnings are likely to remain weak and could come in below consensus. On top of this, the stock may lose its position in the FBM KLCI due to its lower market capitalisation. We cut our FY14-16 earnings by 4-7% to reflect the losses from the floods and Asian Plantations, and lower our SOP-based target price by 20%.
Market priced in concerns
FGV’s share prices has fallen 42% since the company announced its acquisition of Asian Plantations Ltd for RM628m and reported its first quarterly loss since listing in 3Q14. This has led some investors to pare down their stakes. The collapse in its share price has knocked off RM6bn market capitalisation from the stock. We believe the drop has sufficiently priced in the concerns as the market is only valuing its leased estates from the government at RM8,304 per ha, which is below replacement cost.
Focus for 2015
The group plans to focus on disposing its non-core assets in 1H15 and has set up several initiatives to reduce costs and improve the selling price achieved for its palm products. The group will consider selling its Canadian downstream assets, which have been posting losses in 9M14, if a good offer comes along. We view this positively as it will help improve earnings and balance sheet strength.
Future M&A may require external funding
We gather that the group is still keen on expanding its business via M&A but will be more selective now given that it has utilised 90% of its RM4.5bn IPO proceeds. Any future significant M&A may require funding through equity raising and bank borrowings. We estimate the net gearing of the group at 0.1x post its acquisition of Asian Plantations.
Cutting earnings and TP
We have revised down our FY14-16 earnings estimates by 4-7% to reflect the production losses from the floods in Dec and some losses from Asian Plantations. Based on this, we project the group report a net profit of RM12m in 4Q. Our target price which is based on a 20% discount to SOP has been cut to RM2.33 as we lower its asset valuations in line with the weaker earnings prospects.
Source: CIMB Daybreak - 27 January 2015
