25/07/2016 (The Star) - Top planter Felda Global Ventures Holdings Bhd (FGV) is due for a positive re-rating, following news that the group has called off its RM2.9bil acquisition of Indonesia-based PT Eagle High Plantations Tbk, analysts say.

Since early this month, FGV shares have performed well, rising by over 17% given the continued buying interest from major shareholders, and a potential turnaround in the near term under the leadership of new group president and chief executive officer Datuk Zakaria Arshad.

The actively-traded counter yesterday closed nine sen higher at RM1.87, the highest since November last year.

The recovery in the FGV share price, however, is still far below its initial public offering price of RM4.55 in June 2012.

To recap, FGV in mid-June last year had proposed to acquire a 37% stake in Eagle High from Rajawali Group, which is controlled by Indonesian business tycoon Tan Sri Peter Sondakh.

Under the terms of the deal, FGV would pay US$632mil cash for a 30% stake and offer 95 million new FGV shares for 7% more in Eagle High, which is equivalent to about US$47mil.

CIMB Research in its latest report said an “official announcement” that FGV was no longer buying a stake in Eagle High could act as “one of four potential catalysts for the stock”.

The other three catalysts that will prop up the FGV stock price include plans to cut RM100mil in administrative costs in financial year 2016, an improvement in fresh fruit bunch (FFB) yields via better agronomic practices, and the sale of assets that are loss-making to boost future earnings.

Sources said FGV is due to make a formal announcement on this matter some time this week.

CIMB Research also shared market concerns that an Eagle High acquisition could dilute FGV’s shareholders’ funds if the stake was bought at a premium to the market price.

“FGV’s share price was RM1.86 on the day it announced plans to acquire Eagle High.

“The planned acquisition, coupled with disappointing earnings, had pushed down its share price to as low as RM1.18, before rebounding recently.

“We expect the stock to rerate when FGV officially announces that it is no longer eyeing Eagle High.

“Further rerating could be on the cards if Zakaria delivers on the promise to cut costs, improve FFB yields and earnings, and focus on its core and profitable businesses,” added CIMB Research.

Public Investment Bank (PIVB) also welcomed the news flow, as “it removes our concerns on the potential risks from the acquisition”.

Hence, PIVB has removed the 20% discount attached to its sum of parts (SOP)-based valuations and also finetuned FGV’s target price from RM1.37 to RM1.71, pegged on parity to its SOP valuations.

However, its neutral call on FGV remains unchanged.

PIVB also noted that there was no merger and acquisition (M&A) activity for FGV in the pipeline.

“The FGV management has withdrawn the M&A team, implying that the company will only focus on organic growth rather than M&A activity.

“We are positive on the move, as it gives us a firmer gauge of the company’s trend.”

Since his appointment, Zakaria has also terminated FGV’s plan to acquire Zhong Ling Nutril-Oil Holdings Ltd in China.

Recently, FGV hinted at a profit turnaround in the second quarter and beyond, fuelled by improved yields at its estates.

In the first quarter to March 31, FGV posted an RM65.54mil net loss as its palm oil production was severely affected by the El Nino.