Felda Global Ventures Holdings Bhd
(Nov 3, RM3.55)
Maintain neutral with target price of RM3.68: Felda Global Ventures (FGV) has entered into a conditional agreement to acquire Felda IFFCO South China Ltd (FISC) from Felda Iffco S/B (FIS) for a total purchase consideration of 320 million yuan (RM173.41 million).

FISC operates the second-largest fractionation capacity (930,000 tonnes per annum) and storage tank capacity (170,000 tonnes) in South China, as well as a refinery (630,000 tonnes per annum), which ranks as the third-largest in South China.

The facility spans 65,000 sq m. The acquisition is aimed at enhancing FGV’s downstream capabilities to support future expansion initiatives in China.

The refining facility is strategically located close to Port Xinsha, which is the most active trading region in South China. We believe this acquisition is also aimed at streamlining FGV’s organisational structure and earnings stream, given that FIS is a joint venture between FGV’s subsidiary, Felda Holdings and IFFCO Holdings Ltd. The proposed acquisition is expected to be completed by the first quarter of 2015.

In terms of pricing, FGV is paying an enterprise value (EV) of RM270/tonne, which is approximately at a 10% discount to the replacement cost of a new refinery. We believe the discount is reasonable, given that this is not a brand new refinery and has been running for a few years already.

No details were given on the profitability of this facility, although we note that in previous quarters, the entire FIS unit was not profitable. — RHB Research, Nov 3

This article first appeared in The Edge Financial Daily, on November 4, 2014.