Felda Global Ventures shares plunge to new low

PETALING JAYA: Shares in Felda Global Ventures Holdings Bhd (FGV) plunged to a new low following rating cuts by analysts after the company posted its worst-ever quarterly results since its listing in 2012.

The weaker selling price of crude palm oil (CPO), which is down 4% year-to-date, contributed to the company’s depressed earnings outlook.

FGV’s share price ended at RM1.92, down 9 sen or 4.5% on volume of 7.5 million shares. The decline wiped out RM328.33mil from the plantation company’s market capitalisation, bringing it down to RM7bil.

Kenanga Research said in a report yesterday it was lowering FGV’s returns prospects for the current financial year, due to negative fresh fruit bunches (FFB) outlook and limited earnings upside.

“Our valuation basis also incorporates our concern that FGV may be removed from the FBM KLCI in the next review as its market cap has fallen to RM7.3bil based on its last closing price of RM2.01,” it said.

Kenanga Research has lowered its target price for FGV to RM1.88 from RM2.21 previously.

The research house said it didn’t expect FGV’s recent switch to toll manufacturing to have a major impact on earnings.

“Although the switch to a toll manufacturing system should lift the downstream segment from its current loss-making position, we think that the lacklustre crude palm oil price (CPO) expectations and FGV’s higher cost base (RM2,100 per tonne) against the sector’s average of RM1,400 per tonne) may result in further earnings risks.”

AllianceDBS Research concurred that volatility in commodity prices and exchange rates would also affect FGV’s earnings.

“Continued depressed CPO prices would hurt earnings, especially for primarily upstream planters. Additionally, low crude oil prices might affect CPO demand for biofuel. Finally, CPO prices in ringgit terms are also directly affected by the currency’s strength relative to the US dollar.”

AlianceDBS Research has a “hold” call on the stock, with a target price of RM2. FGV’s first-quarter net profit plunged 98% to RM3.58mil from RM143.63mil a year ago due to the lower CPO price and production.

The plantation company that derived more than 70% of its earnings from the upstream division took a hit from the commodity’s negative outlook.

Excluding one-off gains, CIMB Research, in its report yesterday, noted that FGV posted its worst quarterly core earnings since its listing in mid-2012.

“The losses would have been wider if not for the higher earnings contribution from its 51%-owned MSM Malaysia Holdings Bhd (sugar division), which benefitted from the lower raw sugar prices,” it said.

MSM reported a higher first-quarter net profit ended March 31 of RM71mil year-on-year as it focused more on cost efficiency.