By Samantha Joseph
Felda Global Ventures Holdings Bhd (FGV)’s financials for the second quarter of 2013 have been a disappointment to analysts, with a revenue drop of 15.4% from last year’s second quarter results of RM3.54 billion to RM2.99 billion for the same quarter this year.
“Second quarter recurring net profit of RM40 million (down 73% quarter-on-quarter and down 83% year-on-year) met just 7% and 6% of our and consensus full-year forecasts,” Maybank IB analyst Ong Chee Ting said.
On the surface, pre-tax profits have grown year-on-year, from RM298.1 million to RM528 million, but after deducting fair value adjustments on its land lease agreement (LLA) liability, the results were less than impressive.
“Excluding the fair value adjustments on LLA, the group’s profit before tax in the second quarter and first half showed less favourable results at RM249 million (-37% y-o-y, -22% q-o-q) and RM567.7 million (-20.3% y-o-y),” Alliance analyst Arhnue Tan observed.
“After we included actual repayments on the LLA, restated core profit before tax of RM162 million (-44% y-o-y, -32.5% q-o-q) for the second quarter and RM401.9 million (-26.4% y-oy) for the first half of 2013 made up roughly 37% of house and consensus estimates.
“As such, results are deemed below expectations,” she said.
FGV’s plantation profits were hurt by lower crude palm oil average selling price of RM2,279 per tonne in comparison to RM2,480 per tonne full year house estimates, higher replanting expenses and wage costs, losses in the downstream segment during the second quarter and slower rubber product sales and realised margins.
“Plantation profits were stronger q-o-q, boosted by the FV gain in LLA liability. Operationally, plantation profits were significantly weaker on higher plantation costs and weaker mid-to-downstream contributions. Refining margin was negative in the second quarter. Meanwhile, fresh fruit bunch production was flattish q-o-q (+1% QoQ, +6% YoY),” said Maybank’s Ong.
FGV’s pre tax profit margins rose from 8.2% y-o-y to 17.6%, with FGV’s sugar division raking in the highest margin at 21.6% and downstream margin going up 1.5% to -1.2% from -2.6% y-o-y.
Kenanga Research pointed out that no dividend was announced. “This was a negative surprise for us,” the report said. “In the second quarter of 2012, the group announced a dividend of 5.5 sen a share. Nevertheless, the Group reiterated its dividend policy to distribute at least 50% of its net profit as dividend.”
Tan of Alliance added, “The outlook for FGV is challenging going forward, due to the group’s heavy replanting programme of 15,000 hectares per annum.
“A re-rating catalyst for FGV could be to streamline operations by raising its holdings in Felda Holdings to make it a subsidiary. This would give the group full control of major milling, refinery, fertiliser and R&D operations.”
Ong is expecting FGV to deliver in the second half, expecting “a much stronger upstream earnings on higher CPO ASP of RM 2,600 per tonne in the fourth quarter and lower plantation costs. We expect its downstream businesses to generate higher margins on greater availability of FFB and CPO to boost processing margins.”
Alliance maintains its ‘sell’ call on FGV with a lower target price of RM 3.10 from RM 3.33, viewing it as overvalued. Kenanga its their target price from RM 4.60 to RM 4.45, maintaining a ‘market perform’ call on FGV shares.
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