Plantation Sector - Key Takeaways from Felda’s Conference Call OVERWEIGHT

- Felda Global Ventures (UNRATED, RM4.55) held a conference call on its 9MFY12 results last Friday. Felda is currently trading at an FY13F PE of 16x, according to Bloomberg. The group’s annualised net profit was just slightly below consensus estimate of RM916mil for FY12F.  

- Felda Global’s (FGV) revenue grew 61.9% YoY to RM9.0bil in 9MFY12 as the group switched business model from selling FFB to selling CPO. In spite of the higher topline YoY, net profit declined 40.3% to RM626mil in 9MFY12. 

- FGV’s FFB production eased 10% YoY in 9MFY12 while average CPO price realised was RM3,107/tonne. This was 7% lower than the average price of RM3,330/tonne recorded in 9MFY11.  

- Based on the current replanting programme, FGV’s FFB production growth is expected to be zero in FY13F. Thereafter, FFB output would inch up by 3% in FY14F and 5% in FY15F. As for quarterly output trends, historically FGV’s FFB production has always peaked in September.   

- Fertiliser costs are expected to be smaller in 4QFY12 versus 3QFY12. This is because FGV had already applied 95% of its fertiliser requirements in 9MFY12. FGV has not locked-in to buy any fertiliser for FY13F yet. 

- We understand that the implementation of the minimum wage in Malaysia would not have a major impact. This is because it has already been incorporated as part of FGV’s annual pay increment of 5.5%. In addition, most of the group’s workers are already paid higher than the minimum pay threshold of RM900/month.

- FGV views the implementation of the new export tax rate structure in Malaysia positively. The group looks forward towards competing more favourably against Indonesia. Due to the abolition of the tax-free CPO export quota with effect from 1 January 2013, we gather that FGV could be exporting more value-added or refined products in the future. 

- FGV could be disposing of non-core assets by mid-FY13F. These non-core assets, which were not disclosed by the group, are held by 49%-owned associate, Felda Holdings Bhd.  

- FGV recognised gains on disposal of quoted shares of RM45mil in 9MFY12 results. We understand that group has been holding these shares for some time. When the share prices reached the targeted rate of returns, the group sold them in 3QFY12. We gather that if the share prices were to decline to attractive levels, Felda could be looking at buying them back.   

Source: AmeSecurities