MARKET DEVELOPMENT
Kenanga Research Positive On FGV\'s Asset Acquisition
Kenanga Research Positive On FGV\'s Asset Acquisition
20/04/2013 (Bernama) - Kenanga Research is positive on Felda Global Ventures Holdings Bhd's (FGV) acquisition of assets from Mission Biotechnologies Sdn Bhd for RM35 million.
The assets included a 100,000-tonne per annum biodiesel refinery sited on 2.42 hectares of land and a 16,000-tonne tank storage in Kuantan, Pahang.
"We gather that the plant is expected to be fully operational by July 1," Kenanga said in a statement today.
It reckoned that the rationale for the purchase was in line with FGV's strategy to move further downstream in a bid to protect its upstream business.
This is FGV's first venture into the biodiesel refinery business and is part of its support for the Malaysian government's B5 and B10 initiative.
According to FGV Group President Datuk Sabri Ahmad, the B10 initiative, once implemented, can take out 1.0 million metric tonnes of the current 2.1 million tonnes of palm oil stockpile in Malaysia.
"We are positive on the deal as increased biodiesel usage should eventually lead to a lower palm oil inventory in Malaysia and hence better crude palm oil (CPO) prices," the research firm said.
"For every RM100/metric tonne (mt) increase in the average CPO price, we expect FGV's core earnings to increase by 13 per cent," it added.
However, Kenanga said despite its positive view on the deal, it remained concerned on the short-term outlook for FGV's plantation division earnings, which should contribute at least 75 per cent to the group's gross profit in financial year 2012 based on its forecast.
"As CPO prices in the first quarter have been weak, at an average of RM2,324/mt, we believe that FGV's first quarter calendar year earnings will likely miss the consensus estimate.
"Note that the consensus is still estimating an average CPO price of RM2,750/mt, against our estimate of RM2,500/mt," it added.
Kenanga has maintained an 'underperform' rating for the stock with an unchanged target price of RM4.00.
The assets included a 100,000-tonne per annum biodiesel refinery sited on 2.42 hectares of land and a 16,000-tonne tank storage in Kuantan, Pahang.
"We gather that the plant is expected to be fully operational by July 1," Kenanga said in a statement today.
It reckoned that the rationale for the purchase was in line with FGV's strategy to move further downstream in a bid to protect its upstream business.
This is FGV's first venture into the biodiesel refinery business and is part of its support for the Malaysian government's B5 and B10 initiative.
According to FGV Group President Datuk Sabri Ahmad, the B10 initiative, once implemented, can take out 1.0 million metric tonnes of the current 2.1 million tonnes of palm oil stockpile in Malaysia.
"We are positive on the deal as increased biodiesel usage should eventually lead to a lower palm oil inventory in Malaysia and hence better crude palm oil (CPO) prices," the research firm said.
"For every RM100/metric tonne (mt) increase in the average CPO price, we expect FGV's core earnings to increase by 13 per cent," it added.
However, Kenanga said despite its positive view on the deal, it remained concerned on the short-term outlook for FGV's plantation division earnings, which should contribute at least 75 per cent to the group's gross profit in financial year 2012 based on its forecast.
"As CPO prices in the first quarter have been weak, at an average of RM2,324/mt, we believe that FGV's first quarter calendar year earnings will likely miss the consensus estimate.
"Note that the consensus is still estimating an average CPO price of RM2,750/mt, against our estimate of RM2,500/mt," it added.
Kenanga has maintained an 'underperform' rating for the stock with an unchanged target price of RM4.00.