MARKET DEVELOPMENT
CIMB Research Maintains Reduce Rating on FGV
CIMB Research Maintains Reduce Rating on FGV
26/01/2016 (The Star) - CIMB Equities Research is maintaining its Reduce rating on Felda Global Ventures (FGV).
It explained on Tuesday it had raised the discount to its sum-of-parts valuation from 30% to 40%.
“The higher discount is to reflect our concerns over its plans to buy Eagle High Plantations (EHP), as well as for its lower-than-expected output achievement. We maintain our Reduce rating on FGV,” it said.
It was reported that Felda Global Ventures and its parent, the Federal Land Development Authority (FELDA), were close to securing a 30% discount to the initial price tag of US$680mil for a 37% stake in Eagle High Plantations.
The on-going negotiations with the Rajawali group, the parent of Eagle High (EHP), could be concluded within a few weeks, according to the news report.
CIMB Research said the negotiations were reportedly geared towards FELDA acquiring most of the 37% stake in EHP, while FGV purchases “a minority stake”.
This is the picture being painted now and there have been a few delays and variations. With the 30% shaved off the original price tag, the price for the stake in Eagle High would be US$476m (RM2.05bn) at current exchange rates.
Meanwhile, FGV’s chairman was quoted as saying that negotiations were on-going and talks on its potential acquisition of a stake in EHP should be settled within the next two months.
“If this transaction materialises as reported and FGV buys a 10% stake in EHP for around Rp563 per share (30% discount to the last proposed price), it will be negative for FGV as this could potentially dilute FGV’s value by RM416mil (or 11 sen a share).
“This is because at Rp56 a share, the group will be paying a premium of 410% above EHP’s current market price of Rp137 a share, for a small stake.
The persistent news flow on its plans to acquire EHP at a premium over its market price may dampen sentiment on share prices of the company.
“On top of this, the group’s FY15 results are likely to remain weak as it posted a 6% year-on-year decline in fresh fruit bunches (FFB) output for the 11 months of 2015 (11M15), which is sharper than our estimate of a 5% decline for the full year as well as below Malaysia palm oil output growth of 1% in 11M15.
“We suspect this could be due to declining FFB yields at its estates. Maintain Reduce with a lower target price,” it said.
It explained on Tuesday it had raised the discount to its sum-of-parts valuation from 30% to 40%.
“The higher discount is to reflect our concerns over its plans to buy Eagle High Plantations (EHP), as well as for its lower-than-expected output achievement. We maintain our Reduce rating on FGV,” it said.
It was reported that Felda Global Ventures and its parent, the Federal Land Development Authority (FELDA), were close to securing a 30% discount to the initial price tag of US$680mil for a 37% stake in Eagle High Plantations.
The on-going negotiations with the Rajawali group, the parent of Eagle High (EHP), could be concluded within a few weeks, according to the news report.
CIMB Research said the negotiations were reportedly geared towards FELDA acquiring most of the 37% stake in EHP, while FGV purchases “a minority stake”.
This is the picture being painted now and there have been a few delays and variations. With the 30% shaved off the original price tag, the price for the stake in Eagle High would be US$476m (RM2.05bn) at current exchange rates.
Meanwhile, FGV’s chairman was quoted as saying that negotiations were on-going and talks on its potential acquisition of a stake in EHP should be settled within the next two months.
“If this transaction materialises as reported and FGV buys a 10% stake in EHP for around Rp563 per share (30% discount to the last proposed price), it will be negative for FGV as this could potentially dilute FGV’s value by RM416mil (or 11 sen a share).
“This is because at Rp56 a share, the group will be paying a premium of 410% above EHP’s current market price of Rp137 a share, for a small stake.
The persistent news flow on its plans to acquire EHP at a premium over its market price may dampen sentiment on share prices of the company.
“On top of this, the group’s FY15 results are likely to remain weak as it posted a 6% year-on-year decline in fresh fruit bunches (FFB) output for the 11 months of 2015 (11M15), which is sharper than our estimate of a 5% decline for the full year as well as below Malaysia palm oil output growth of 1% in 11M15.
“We suspect this could be due to declining FFB yields at its estates. Maintain Reduce with a lower target price,” it said.