Felda Global Ventures Holdings Bhd
(Jan 27, RM2.40)
Upgrade to hold from reduce with target price (TP) of RM2.33: Felda Global Ventures Holdings Bhd’s (FGV) share price has fallen 42% since the company announced its acquisition of Asian Plantations Ltd for RM628 million and reported its first quarterly loss since listing in the third quarter ended Sept 30, 2014 (3QFY14).

We believe the drop has sufficiently priced in the concerns as the market is only valuing its leased estates from the government at RM8,304 per hectare (ha), which is below replacement cost.

The group plans to focus on the disposal of its non-core assets in the first half of 2015 and has set up several initiatives to reduce costs and improve the selling price of its palm products. The  group will consider selling its Canadian downstream assets, which have been posting losses for the nine months ended Sept 30, 2014, if a good offer comes along. We view this positively as it will improve earnings and balance sheet strength.

We gather that the group is still keen on expanding via mergers and acquisition (M&A) but will be more selective now given that it has utilised 90% of its RM4.5 billion initial public offering  proceeds. Any future M&A may require funding through equity raising and bank borrowings. — CIMB Research, Jan 26

This article first appeared in The Edge Financial Daily, on January 28, 2015.