This article first appeared in The Edge Financial Daily on April 19, 2018

Felda Global Ventures Holdings Bhd
(April 18, RM1.81)
Maintain buy with an unchanged target price (TP) of RM2.26: We expect Felda Global Ventures Holdings Bhd’s (FGV) plantation division earnings to continue growing in 2018-2020, on the back of a boost in fresh fruit bunch (FFB) yields and crude palm oil (CPO) production, arising from an increasing prime matured palm-tree area. We also expect improvement in production cost to offset the impact of a dip in CPO prices. Over the years, FGV’s palm-tree-age profile has improved and currently its average palm-tree age stands at about 14.5 years. We expect FGV to be on track to achieve an ideal palm-tree age profile of 12 years to 13 years by 2020 through an annual replanting programme of about 3% to 6% of its planted land bank.

We expect subsidiary MSM Malaysia Holdings Bhd to generate better earnings in 2018 given favourable raw-material cost and currency factors, though we note there could be some downside risks from its new refinery.

Based on our sensitivity analysis, a move of RM50-RM150 per tonne in CPO prices could affect core earnings per share (EPS) by 10%-33% in financial year 2018 (FY18)-FY20. A swing in FFB yields by 0.25 tonne/hectare to one tonne/hectare would impact 2018-2020 core EPS by 2%-11%, while a change in the oil-extraction rate of 0.25%-1% would affect core EPS by 2%-9%.

We reaffirm our “buy” call on FGV with a 12-month TP of RM2.26, based on an unchanged 25 times price-earnings ratio on our 2018 core EPS. Key earnings drivers would be higher FFB and CPO production and a better contribution from the sugar business. We like FGV as its management team is focused on improving the core business and operations, and enhancing return on equity of the business through capital and resource optimisation. — Affin Hwang Capital Research, April 18