MARKET DEVELOPMENT
Analysts Positive on FGV’s Canada Plant Disposal
Analysts Positive on FGV’s Canada Plant Disposal
02/09/2015 (The Star) - Analysts have given the thumbs up to Felda Global Ventures Holdings Bhd’s (FGV) proposed disposal of its offseeds crushing and refining plant in Canada to Viterra Inc for RM608.2mil, stating that the sell-off is positive for the group since it is keen to raise funds for working capital and pay debts.
Shares of FGV had taken a beating as investors reacted negatively after it announced it was acquiring a 37% stake in Indonesia’s PT Eagle High Plantations for US$680mil in June. They felt FGV had overpaid in the deal.
The volatile market condition, low commodity and weak palm oil prices had also attributed to the fall of FGV’s share price.
Since Feb 24, the share price has slumped 58.5% and is trading at RM1.22.
In its published report, Affin Hwang Capital said the proposed disposal of TRT-ETGO was positive since the unit has been recording losses.
“The potential one-off gain is large since it has been estimated to project low profits in 2015.
“Also, FGV’s borrowings will significantly rise again if the group decides to acquire a 37% stake in Indonesia’s PT Eagle High Plantations for US$680mil,” said the research house, maintaning its “hold” call on the stock with a target price of RM1.32.
It said downside risks included a weak global economy, high vegetable oil output, hike in production costs and excessive valuations for new acquisitions.
Kenanga Research also concurred with Affin Hwang, stating that FGV was making the right move to dispose of TRT-ETGO, which has been loss-making for the last three years. It expected FGV’s downstream segment’s margins to turn positive as refining facilities have been converted to a toll manufacturing system. But, this should only impact FGV’s earnings from financial year 2016 onwards.
“The acquisition price at 1.3 times price-to-book value (PBV) is fair despite being priced at a 33% discount to its peer average PBV of 1.9 times, given its loss-making status now,” said the research house, maintaining its “market perform” call with a target price of RM1.30.
The upside was limited on weak crude palm oil price sentiment, Kenanga Research pointed out, adding that the downside was also curbed in view of its share price trading below financial year 2015 estimate book value of RM1.77 per share.
Last Friday, the Kuala-Lumpur based FGV had proposed to sell the entire share capital in TRT-ETGO in Quebec to Viterra for RM608.2mil.
It intends to raise gross proceeds of about RM596.7mil for working capital and pay its borrowings. As at end of March, FGV’s debt stood at RM4.6bil.
FGV’s move in disposing of its stake in TRT-ETGO also comes after the Prime Minister Datuk Seri Najib Tun Razak made a call to government-linked companies (GLCs) with liquid assets abroad to take advantage of the weak ringgit by bringing back the assets.
GLCs that parked their money abroad into assets that were not yielding good returns were requested to sell and bring back the money to gain substantially from the difference in the ringgit. The stock closed up 2 sen, or 1.67%, at RM1.22 on Friday, with a market capitalisation of RM4.45bil.
Shares of FGV had taken a beating as investors reacted negatively after it announced it was acquiring a 37% stake in Indonesia’s PT Eagle High Plantations for US$680mil in June. They felt FGV had overpaid in the deal.
The volatile market condition, low commodity and weak palm oil prices had also attributed to the fall of FGV’s share price.
Since Feb 24, the share price has slumped 58.5% and is trading at RM1.22.
In its published report, Affin Hwang Capital said the proposed disposal of TRT-ETGO was positive since the unit has been recording losses.
“The potential one-off gain is large since it has been estimated to project low profits in 2015.
“Also, FGV’s borrowings will significantly rise again if the group decides to acquire a 37% stake in Indonesia’s PT Eagle High Plantations for US$680mil,” said the research house, maintaning its “hold” call on the stock with a target price of RM1.32.
It said downside risks included a weak global economy, high vegetable oil output, hike in production costs and excessive valuations for new acquisitions.
Kenanga Research also concurred with Affin Hwang, stating that FGV was making the right move to dispose of TRT-ETGO, which has been loss-making for the last three years. It expected FGV’s downstream segment’s margins to turn positive as refining facilities have been converted to a toll manufacturing system. But, this should only impact FGV’s earnings from financial year 2016 onwards.
“The acquisition price at 1.3 times price-to-book value (PBV) is fair despite being priced at a 33% discount to its peer average PBV of 1.9 times, given its loss-making status now,” said the research house, maintaining its “market perform” call with a target price of RM1.30.
The upside was limited on weak crude palm oil price sentiment, Kenanga Research pointed out, adding that the downside was also curbed in view of its share price trading below financial year 2015 estimate book value of RM1.77 per share.
Last Friday, the Kuala-Lumpur based FGV had proposed to sell the entire share capital in TRT-ETGO in Quebec to Viterra for RM608.2mil.
It intends to raise gross proceeds of about RM596.7mil for working capital and pay its borrowings. As at end of March, FGV’s debt stood at RM4.6bil.
FGV’s move in disposing of its stake in TRT-ETGO also comes after the Prime Minister Datuk Seri Najib Tun Razak made a call to government-linked companies (GLCs) with liquid assets abroad to take advantage of the weak ringgit by bringing back the assets.
GLCs that parked their money abroad into assets that were not yielding good returns were requested to sell and bring back the money to gain substantially from the difference in the ringgit. The stock closed up 2 sen, or 1.67%, at RM1.22 on Friday, with a market capitalisation of RM4.45bil.