KUCHING: Felda Global Ventures Holdings Bhd’s (Felda Global Ventures) growth prospects has been viewed as favourable driven mainly by the change of its business model due to the positive outlook of crude palm oil (CPO) prices.
The research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) noted in a research report yesterday, despite an expected higher operating cost, it opined that Felda Global Venture’s earnings growth would remain positive while its revenue would see a growth of 48 per cent year-on-year (y-o-y) to RM11.1 billion in the financial year 2012 (FY12) supported by the change of its business model.
“For 2012, Felda Global Ventures is expected to register modest earnings growth of 9.6 per cent to RM1.03 billion, from RM0.94 billion in FY11 due to higher cost of production, and soft CPO prices.
“The higher cost includes replanting expenditures of around RM15,000 to RM20,000 per hectare (ha),” the research firm said, noting that the groups is expected to replant 15,000 ha every year in order to improve its age tree profiles.
In addition, in-line with its aggressive replanting programme, the research firm expected higher fertiliser cost would be incurred due to the increase in fertiliser’s application rate.
MIDF Research further opined Felda Global Ventures’ cost of production would remain high in 2013 attributable to the implementation of minimum wage policy effective on January 1, 2013.
“The cost of labour is expected to increase by 20 to 30 per cent from the previous rate,” it said.
On the other hand, the research firm noted the lower-than expected average CPO price recorded in fourth quarter of FY12 (4QFY12) had also affected the group’s margin.
However, it outlined, despite higher operating cost, the earnings prospect for Felda Global Ventures remain positive as CPO price was expected to steadily recover in 2013.
“The implementation of the new CPO tax regime is expected to help Felda Global Ventures to improve its downstream business and support earnings going forward,” the research firm said.
Furthermore, it noted that CPO price could potentially trend higher due to substitution-effect vis-à-vis soy oils and higher export demand.
Given favourable outlook in Felda Global Ventures’ upstream and the downstream businesses, MIDF Research highlighted that the group had a substantial potential to grow its earnings going forward.
As such, it pegged the target price at an unchanged RM5.27 per share, derived from sum-of-parts valuation.