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PETALING JAYA: FGV Holdings Bhd’s possible disposal of its 51% stake in MSM Malaysia Holdings Bhd might warrant a re-rating of its share price should the stake sale materialise, according to Hong Leong Investment Bank Research (HLIB Research).
Although the disposal will likely result in FGV incurring a disposal loss or impairing the remaining stake in MSM if it is a partial disposal, the research house still views the move positively as it will reduce MSM’s share of losses to FGV and FGV’s net gearing.
Despite the fact that FGV’s performance in Q3 19 will likely to remain weak as the crude palm oil (CPO) price only started recovering since August and raw sugar cost will remain high for the rest of 2019, HLIB Research opined that FGV deserves a relook into.
Earlier, FGV had confirmed that it was in talks with several parties to dispose of its 51% stake in MSM.
FGV reported a loss before tax of RM56.8 million in Q2 19 compared to a profit before tax of RM23.4 million in Q1 19, dragged down mainly by losses registered at sugar and plantation segments.
“We believe weak Q2 19 performance was the main culprit to FGV’s share price downtrend since August 2019.” said HLIB Research.
The research house raised its net loss forecast for FGV by 47% to RM130.7 million, to account for larger loss assumptions at sugar division and JV losses.
However, it will maintain its FY20-21 core net profit forecasts at RM7.1 million-RM18 million based on average CPO price assumption of RM2,200/tonne and fresh fruit bunches output of 4.9 million tonnes and 5.4 million tonnes, respectively.
“We took this opportunity to switch our valuation methodology, to better reflect the value of FGV’s businesses. Post revision of valuation methodology, we upgrade our rating on FGV to buy from hold previously with a target price of RM1.22 from 97 sen previously.”
