Analysts lower estimates for FGV

PETALING JAYA: Analysts have lowered their estimates for Felda Global Ventures Holdings Bhd (FGV) following the group’s dismal results for the second quarter ended June 30, 2017.

“Given that 1H17 earnings fell below our expectations, we cut our 2017-19E core earnings per share (EPS) by 15-20% mainly to account for a lower earnings contribution from the sugar business (mainly from MSM Malaysia Holdings Bhd) and our higher 2018-19E crude palm oil (CPO) production cost assumptions,” Affin Hwang Capital said in its report today.

It maintained its “hold” rating on the stock, but due to the cut in the core EPS, it revised downwards its 12-month target price on FGV to RM1.60 from RM1.87 previously.

Meanwhile, MIDF Research cut its FY17 core net profit estimates by 67% to RM23 million from RM70 million previously, after assuming lower fresh fruit bunches (FFB) production in the plantation division.

It maintained its “neutral” call with a target price of RM1.59. Despite the weak 1H17 results, it expects earnings to improve in the rest of the year due to higher FFB volume and noted the management’s commendable effort to control cost.

Last Wednesday, FGV reported a 65% drop in its 2Q17 net profit to RM26 million from RM74 million a year ago while revenue rose 2% to RM4.22 billion from RM4.14 billion a year ago.

In 1H17, revenue rose 8.3% year-on-year to RM8.55 billion mainly due to higher contribution across all divisions, with plantation sugar and logistics and others (LO) divisions’ revenues rising 3.8%, 13% and 50.6% respectively year-on-year. Pre-tax profit rose 34.8% to RM56 million.

The group attributed the results to the RM41.6 million loss incurred in the sugar sector as a result of higher raw material costs and a weaker ringgit despite improved average selling price and higher domestic sales volumes.

After excluding impairments, provisions for litigation loss, foreign exchange gains and other one-off items, FGV recorded a core net profit of RM120.1 million in 1H17, from a core net loss of RM8.2 million in 1H16.

“This was below our expectations, accounting for 43% of our previous 2017E forecasts. The variance was mainly due to the loss-making sugar division,” said Affin Hwang Capital.

Note that FGV has revised downwards its FFB production target for the year to 4.3 million tonnes from the initial 4.5 million tonnes, citing shortage of labour and the slow recovery of younger age trees.

The group achieved FFB production of 1.04 million tonnes for 2Q17 and 1.85 million tonnes for 1H17. Last year, it achieved FFB production of 3.9 million tonnes.

FGV shares rose three sen to close at RM1.58 today on some 5.4 million shares done.