FGV has referred the cases of suspended group president Datuk Zakaria Arshad and group chief financial officer Ahmad Tifli Mohd Talha to a domestic inquiry panel.
KUALA LUMPUR: Felda Global Ventures Bhd (FGV) reported core net losses for the final quarter of FY 16 and for the financial year which were higher than CIMB Equities Research and market’s expectations.
FGV posted 4Q16 and FY16 core losses of RM95mil and RM157mil against the research house and consensus core net loss forecasts of RM73mil and RM50mil due to weaker sugar and plantation profits.
“We cut our EPS forecasts to reflect lower downstream and plantation earnings. We maintain Hold but raise our sum-of-parts based target price to RM1.95,” it said.
CIMB Research said FGV’s core net loss excludes fair value of land lease agreement (LLA) liabilities and one-off items (stock losses in its joint-venture company, impairment losses on mills and refinery, and provision for mutual separation scheme) from the reported net profit, and adds back the actual payment made for LLA.
However, FGV reported a net profit of RM110.6mil in 4Q16, due mainly to a gain in FV changes in the LLA of RM139mil and positive impact of RM57mil from changes in accounting policy to capitalise and depreciate its replanting costs, instead of expensing them previously.
CIMB Research said FGV’s better plantation were unable to make up for weaker sugar earnings.
Plantation earnings grew 6% in FY16, as the higher average crude palm oil (CPO) selling price of RM2,560 (+16% on-year) more than offset the 16% drop in fresh fruit bunches (FFB) output.
The plantation division also received a boost in pretax profit of RM88mil, following the change in accounting policy to depreciate instead of expensing off its replanting costs of RM317mil in 2016.
Sugar earnings tumbled 59% in FY16 due to higher raw sugar costs, leading FGV group to report a 43% drop in profit before tax in FY16.
“FGV is targeting to grow its FFB output by 15% to 4.5 million tonnes in 2017. The group revealed that the rebound in output will be stronger in 2Q and 3Q.
“It also plans to reduce its CPO production costs ex-mill by 9% to RM1,450 per tonne and replant 15,000 ha of old trees.
“It also plans to look into divesting and liquidating non-core or non-performing assets. It also shared its 2020 target to boost FFB output to 5.26 million tonnes,” it said.
“We cut our FY17-18F earnings forecasts by 22-39% to reflect lower downstream contributions, lower milling profit and minor tweaks to our sugar contributions.
“We are positive on the group’s plan to close excess milling and refining capacity and move to capitalise replanting costs but this is offset by the weak 4Q results and low FFB yields achievement at its estates of 14.5 tonnes per hectare in FY16.
“We raise our sum-of-parts based target price, which is based on a 20% discount to SOP, to RM1.95 to reflect higher valuations for its sugar and plantation businesses.
“We maintain our Hold call as we are of the view that the stock is fairly valued at the current level, supported by its book value of RM1.60. We project FGV to turn around and report a net profit in FY17 driven by better plantation and sugar contributions.
“Key upside and downside risks are upside and downside CPO price movements beyond our expectations,” it said.
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