KUALA LUMPUR: Felda Global Ventures Holdings Bhd’s (FGV) net losses for the nine months and third quarter ended Sept 30, 2016 will see the plantations group report net losses for the financial year ending Dec 31, 2016, says CIMB Equities Research.
“FGV’s 3Q and 9M16 core losses of RM33mil and RM81mil were below our and market expectations of core net profit of RM126mil and RM118mil, respectively. The poorer results were due to weaker sugar, downstream and transports, marketing, logistics and others (TMLO) contributions,” it said on Wednesday.
“Reported net profit sank into deeper losses due to RM62mil losses from its joint venture. The group expects to report a loss for the full year in view of weak 9M16 results.
“We cut our EPS forecasts and reduce our sum-of-parts based target price to RM1.68. Maintain Hold,” it said.
CIMB Research said the losses were due mainly to lower-than-expected sugar earnings, losses from downstream and derivatives.
The core net loss excludes fair value of land lease agreement liability (LLA) liabilities and one-off items (stock losses in its joint-venture company and reversal of impairments of property, plant and equipment) from the reported net profit, and adds back the actual payment made for LLA.
“FGV’s 3Q16 reported net loss was higher at RM95mil, due mainly to higher FV changes in LLA of RM105mil and share of losses from joint ventures of RM62mil.
“FGV revealed that the significant losses suffered by its JV were due to stock losses of RM57mil discovered during the quarter due to fraudulent activities relating to manipulation of the final stocks. It has provided for all the losses and there is an ongoing forensic accounting on the JV,” it said.
CIMB Research said the group posted a 4% on-quarter rise in fresh fruit bunches (FFB) output in 3Q16 as its estate yield recovered from an El Nino-induced drought.
This, coupled with higher average selling price (ASP) for palm kernel, more than offset lower ASP for CPO (-5% on-quarter). As a result, plantation earnings (ex-FV of LLA) grew 23% on-quarter and 41% on-year to RM196mil in 3Q16.
For 9M16, plantation earnings fell 3% on-year as the higher CPO prices were not sufficient to offset the lower output.
FGV’s sugar business posted weaker-than-expected earnings as the group was unable to pass on the higher raw sugar costs to domestic consumers due to the retail price ceiling on sugar.
Contribution from its share from joint ventures fell to larger losses of RM63mil in 3Q16 vs. 2Q16, due mainly to forex and stock losses. These, coupled with losses
from downstream and derivatives, more than offset the 4% on-quarter and 32% on-year decline in administrative costs in 3Q16.
“FGV’s 9M16 results failed to meet our earnings projections this year due to the unexpected sharp rise in raw sugar costs and the group’s inability to pass on the costs to consumers.
“On top of this, the group’s joint ventures posted significant losses and downstream was affected by weaker margin and derivative losses. This more than offset efforts to cut costs.
“We cut our earnings forecasts to reflect lower sugar contributions, JV losses and lower plantation earnings. This led us to reduce our target price, which is based on a 20% discount to sum-of-parts, to RM1.68.
“We maintain our Hold call as we see price support from its book value of RM1.71 a share. Key upside risk and downside risk are the direction of crude palm oil prices,” it said.
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