Felda Global Ventures - Accept Tradewinds takeover offer

News    Felda Global Ventures (“FGV”) announced that it has accepted the takeover offer for its 20% stake in Tradewinds (M) Berhad (“TWM”) for cash offer price of RM9.30/share. Recall that on 24-Dec-2012, TWM has received a notice of conditional take-over offer*.

Rationale to accept the takeover offer is the opportunity to realize an attractive return of 165% within 3 years of investment (FGV cost is at RM3.50 per share before accounting for associate income realized throughout FGV investment in TWM). FGV also stated it will have minimal influence on TWM future strategic direction given its minority stake if it chooses not to accept TWM offer.

We gather that FGV will receive cash of RM551m and is  expected  to  book  in  gain  of  RM57.5m  upon completion of the acceptance deal. The proceeds will be used for business expansion and working capital.

 

Comments     We  are  at  best  neutral  on  the  news  as  FY13E  core earnings may decline by up to RM33m or 3.5% of our current estimate. Our base case assumption is that the proceeds of RM551m will generate interest income of RM17m assuming 3.15% yield based on MGS 3-year yield. However, the absence of associate income from TWM is estimated to be higher at RM50m.

As FGV has yet to announce any significant landbanking on plantation land despite its total cash of RM5.61b, we have assumed the base case that the proceeds of RM551m will not be utilised for landbank expansion in FY13E.

Possibility of special dividend was not mentioned in FGV announcement. However, in case FGV intends to distribute the whole cash proceeds of RM551m as special dividends, it will  translate into 15 sen per share.

 

Outlook  On the replanting effort, we gather that FGV has planted about 15,000 ha in 2012. This is consistent with its target of replanting close to 60,000 ha of its plantation land in 4 years’ time (from 2012 to 2015).

However, short-term outlook will be affected by CPO price, which has stayed below RM2500 for an extended period.

 

Forecast    Maintain FY12E-FY13E core earnings of RM786mRM927m. Pending further guidance from management, we maintain our FY13E earnings with downside bias.

 

Rating    Maintain MARKET PERFORM

Its unexciting FY12E-FY13E earnings growth should keep the share price upside limited.

 

Valuation    We maintain our TP of RM4.40 based on a Sum-OfParts valuation with the plantation division valued at a Fwd. PER of 17.5x.

 

Risks    Sustained low CPO prices.

Source: Kenanga