Felda Global Ventures Holdings Bhd
(May 27, RM1.92)
Downgrade to underperform from market perform with lower target price of RM1.88. FGV’s core net loss (CNL) for the first quarter ended March (1QFY15) of RM44 million fell woefully and short of both consensus expectation of RM416 million and ours of RM393 million.
This is the third consecutive quarter of disappointments.
The CNL was mainly due to poor plantation segment earnings, which saw loss before tax of RM1.6 million on weak crude palm oil (CPO) prices and a sharp drop in fresh fruit bunch (FFB) production which resulted in poorer operating margins at 1.8% versus 1QFY14’s 6.5%.
In the plantation division, we expect CPO prices to average RM2,200 per tonne in FY15, which is slightly below management’s FY15 expected CPO price range of RM2,250 to RM2,400 per tonne.
Management expects refining margins to remain weak in the short term, although with the recent switch to toll manufacturing for FGV’s refiners as mentioned in our previous report, we think the downstream side may see some improvement going forward.
We reduce our FY15 and FY16 core net profit by 22% and 15% to RM306 million and RM364 million in light of the weak 1QFY15 earnings.
We revise downwards our FY15 and FY16 FFB growth expectations to 6% and 5% to account for poor 1Q FFB production and FGV’s aggressive replanting efforts, which reduce the overall harvestable area. — Kenanga Investment Bank Research, May 27
FGV (5222) - FGV’s FY15-FY16 growth expectations revised downwards
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