This article first appeared in The Edge Financial Daily on April 11, 2018
Felda Global Ventures Holdings Bhd
(April 10, RM1.90)
Maintain neutral with an adjusted target price (TP) of RM1.75: Felda Global Ventures Holdings Bhd (FGV) has announced that its subsidiaries, Felda Global Ventures Research & Development Sdn Bhd (FGVRD) and Felda Agricultural Services Sdn Bhd (FAS) were served with a Kuala Lumpur High Court writ of summons together with a statement of claim last Thursday by Fulle Technik Sdn Bhd (FTSB). We gather that FTSB is claiming a total amount of RM23.39 million from FGV.
In September 2014, FGVRD appointed FTSB to develop a prototype machine known as the Subsoil Fertilizer Machine (SFM). FTSB has alleged that FGVRD had (in breach of their contractual obligations) appointed a third party via an open tender to build and supply the SFM. In this regard, FTSB claims RM23.39 million against FGVRD and FAS.
We maintain our financial year 2018 core net profit forecast of RM106 million at this juncture pending further details from FGV. The company has mentioned that the material litigation may have a material financial impact and it will make necessary announcements on further development of the case in due course.
We lower our TP to RM1.75 (from RM1.96) as we lower our price-to-book target to 1.1 times (from 1.23 times). We are now using mean valuation (from +0.5 standard deviation valuation) to account for earnings risk from this material litigation. Despite the reduction in our TP, we do not foresee a significant downside to its share price as the company has been registering core net profits in the past two quarters, suggesting a more sustainable earnings trend. — MIDF Research, April 10