CIMB expresses caution even if FGV buys less than 10% in Eagle High

KUALA LUMPUR: CIMB Research expects the market to view negatively the possibility of Felda Global Ventures Holdings Bhd (FGV) taking up less than a 10% stake in PT Eagle High Plantations Tbk.

This could further dilute the earnings of FGV and also lead to potential write-offs in its investments, said the research unit in its latest report.

“Assuming the news flow comes true and FGV buys a 10% stake in Eagle High for 543 rupiah per share at a 30% discount to the last proposed price of 775 rupiah per share, we estimate a potential dilution to our sum-of-parts target price for FGV of 12 sen per share,” it added.

Over the weekend, a news report, quoting sources, said that Felda Group and FGV were negotiating hard for the Eagle High deal.

The research unit also pointed out that Felda Investment Corp might not be interested to participate in the deal, citing its investment mandate which is to invest in non-plantation business.

Meanwhile, Kenanga Research is neutral-to-positive on the latest FGV-Eagle High development as “the valuations are still unclear with the the updated pricing still has yet to be announced.”

“However, we expect FGV’s outlay to be substantially lower than the initial deal of RM2.62bil cash and 95.4 million new shares, which somewhat eases our concerns on FGV’s balance sheet if they take up the deal.

“If FGV’s final Eagle High stake is indeed less than 10%, we expect minimal earnings impact, going forward, as FGV would receive only dividend income from Eagle High,” it said in its latest report.

Kenanga Research has an ‘underperformed’ call on FGV with a target price set at RM1.61 per share.

Although formal confirmation of the restructured deal would reduce the uncertainty that had plagued FGV in the last few months, Kenanga Research has forecast a weak short-term earnings outlook that will continue to dampen the share price performance.

FGV shares closed six sen lower or 3.73% to RM1.55 yesterday.