PublicInvest welcomes news of FGV’s lack of interest in Eagle High

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After much debate over the valuations of the deals, FGV said that it is looking at different mode of investment in Eagle High such as joint-venture, a small investment stake or other form of mutually agreed collaboration.

After much debate over the valuations of the deals, FGV said that it is looking at different mode of investment in Eagle High such as joint-venture, a small investment stake or other form of mutually agreed collaboration.

KUCHING: The research arm of Public Investment Bank Bhd (PublicInvest Research) has welcomed news reported from other media that Felda Global Ventures Bhd (FGV) is no longer looking to acquire a stake in Indonesia’s PT Eagle High Plantations Tbk (Eagle High).

PublicInvest Research recapped that in June last year, FGV planned to purchase a 30 per cent stake in Eagle High for US$632 million (RM2.5 billion) in cash and a further seven per cent via an issuance of 95 million new FGV shares worth US$48 million (RM192 million) for a total of US$680 million or RM2.9 billion.

“Since then, share price has slid from RM1.86 to as low as 1.18 due to the uncertainties over hefty valuations and potential risks arise from the acquisition.

“After much debate over the valuations of the deals, FGV said that it is looking at different mode of investment in Eagle High such as joint-venture, a small investment stake or other form of mutually agreed collaboration,” the research arm said.

PublicInvest Research welcomed the news flow as it removes the research arm’s concerns on the potential risks from the acquisition.

Moving forward, the research arm expects to see improved results in the upcoming second quarter of financial year 2016 (2QFY16) compared to the first quarter attributed to the stronger crude palm oil (CPO) prices and higher fresh fruit bunch (FFB) production.

However, on the year on year (y-o-y) basis, the research arm thought it could be relatively flat as stronger CPO prices (2QFY16: RM2,601 per metric tonne (mt) versus 2QFY15: RM2,193 per mt) would offset the weaker FFB production.

On FGV’s share price, PublicInvest Research highlighted that it has performed well since early July, rising more than 17 per cent, supported by continuous buying interest from major shareholders, clearer picture over the acquisition in Eagle High, potential turnaround in the near-term and new leadership under the president and chief executive officer (CEO) Datuk Zakaria Arshad since late-May.

“According to the guidance, the management has withdrawn the M&A team, implying that the company will only focus on the organic growth rather than merger and acquisition (M&A) activity.

“We are positive on the move as it gives us a firmer gauge over the company trend. Since the appointment, Datuk Zakaria has also terminated its plan to acquire Zhong Ling Nutril Oil in China,” the research arm said.

Following the news with Eagle High, PublicInvest Research removed the 20 per cent discount attached to its sum of parts (SOP)-based valuations and the research arm also fine tuned its target price, which increased from RM1.37 per share to RM1.71 per share, pegged on parity to its SOP valuations.

However, PublicInvest Research’s ‘neutral’ call remained unchanged.