This article first appeared in The Edge Financial Daily on May 16, 2018
Felda Global Ventures Holdings Bhd
(May 15, RM1.87)
Maintain hold with a target price (TP) of RM2.01: Felda Global Ventures Holdings Bhd (FGV) announced that Felda Palm Industries Sdn Bhd (a 72%-owned subsidiary of Felda Holdings Bhd, which in turn is a wholly-owned subsidiary of FGV) has entered into a sale and purchase agreement with Orient View Sdn Bhd to dispose of its 30% stake in Taiko Clay Chemicals Sdn Bhd (TCC) for RM145 million.
Incorporated in 1996, TCC is involved in the businesses of manufacture and sale of bleaching earth and related products, production of sulphuric acid, oleum and battery acid, and general trading and manufacture of aluminium sulphate. TCC recorded net profits of RM44.8 million, RM49.8 million and RM51.8 million in 2015 to 2017.
It is understood that TCC is planning to expand its businesses outside of Malaysia and such an expansion plan will likely require additional capital injections from its shareholders. FGV considers the disposal a good opportunity to monetise its investment in TCC after taking into considerations which include: TCC is a non-core business, further investment in TCC is a deviation from FGV’s current focus on its core businesses, and the expansion plan may have an immediate impact on TCC’s ability to pay dividends,.
Upon completion of the disposal (expected by the second half of 2018), FGV is expected to realise a one-off disposal gain of RM16.1 million.
The latest move is in line with FGV’s strategy to focus on improving its core business performance and strategic divestment of non-core businesses. Our forecasts are maintained for now, pending the release of its first quarter of financial year 2018 results by end-May. We maintain our “hold” recommendation for now, with an unchanged sum-of-parts-derived TP of RM2.01. — Hong Leong Investment Bank Research, May 15