FGV down on stock downgrade

  • Business
  • Thursday, 26 Feb 2015

PETALING JAYA: Felda Global Ventures Holdings Bhd’s (FGV) share price dropped by almost 13% after analysts downgraded the stock following the group’s disappointing quarter.

The stock closed 38 sen lower at RM2.56 yesterday, the steepest fall in the last 18 months. The counter saw 14.56 million shares being traded.

Some volatility in the shares is expected, as analysts have maintained their bleak outlook on the group’s performance, stating that the downstream segment remained a challenge.

CIMB Research attributed the weaker fourth-quarter earnings to lower plantation and downstream contributions.

It also downgraded the stock as it viewed the 34% share price rally over the past months as unjustified, given its poor quarterly results and potential removal from the FTSE Bursa Malaysia KL Composite Index due to its lower market capitalisation.

With a final four-sen dividend, CIMB Research said FGV’s total 10-sen dividend payout exceeded its forecast of eight sen.

The research house trimmed its core earnings per share by 21% to 25% to reflect higher estate costs and weaker downstream earnings.

“Turnaround is unlikely in the near term and we have cut financial year 2015 (FY15) and FY16 forecast earnings by 23% and 24%, respectively,” Alliance DBS Research said, attributing the weak performance to the loss-making downstream segment due to negative refined, bleached and deodorised and margins, while upstream lacked lustre on low production and prices.

Alliance maintained its “hold” rating with a target price of RM2.50.

RHB Research Institute also concurred with the above research houses and downgraded the stock to a “sell”, with a revised target price of RM1.90, a 35% drop from the previous RM2.20.

“We cut our earnings forecast for FGV by 11%-12% after adjusting for higher minority interest and administrative expenses.

“The outlook looks bleak unless FGV can boost net profit via earnings-accretive acquisitions and extract synergy from its previous acquisitions,” it said, highlighting that every RM100 per tonne change in crude palm oil prices could affect its earnings by 4%-6% per annum.

Kenanga Research opined that the proposed four-sen dividend was below its estimate of 7.5 sen.

It further downgraded FGV’s stock to “underperform”, adjusting its target price to RM2.85 from RM2.97 based on an unchanged price-to-earnings ratio of 26.5 times.

“We trim our FY15 estimate by 4% to RM393mil, as we tweak our fresh fruit bunches growth expectation down to 1.9% while we adjust downstream margins slightly higher to 1.3% to account for the weaker upstream and reorganised downstream segments,” the research house said.

It added that it might consider further trimming earnings, pending clarity from the management.

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