Thursday, December 27, 2012
Felda Global Ventures Berhad
It seem suddenly got many happening in this few days for Felda Global Ventures Berhad (FGV), first the lock up period is ended for their cornerstone investor which fear by other shareholder that it may spark a sell down from them, than their 20% own Tradewinds (M) Bhd is offer by 4 joint offerors with RM9.30 per share.
For the TA Securities research report for they still have a sell call for FGV at target price of RM3.80, it is well below its IPO price for retailer at RM4.45 and institutional price of RM4.55, indeed currently its share price already start hovering near their IPO price.
TA Securities have this to say,
What’s the News?
Tradewinds (M) Bhd (TWM), a 20% associate of FGV, received a notice of
conditional take-over offer from Perspective Lane (M) Sdn Bhd, Kelana
Ventures Sdn Bhd, Seaport Terminal (Johore) Sdn Bhd and Acara Kreatif Sdn
Bhd (Joint Offerors) to acquire all the remaining ordinary shares not already
owned for a cash offer price of RM9.30/share. This represents a premium of
20% based on TWM’s last trading price of RM7.75. Currently, the joint offerors
hold approximately 45.13% of TWM.
For the take-over offer to be completed, acceptance level must be at least 90%
of the remaining portion, which will trigger a mandatory privatisation of the
company. According to the announcement, the joint offerors do not intend to
maintain the listing status of TWM, in the event the takeover offer receives
What’s Our Take?
All in, we are neutral on the privatisation news of TWM. In 2010, FGV acquired
the stake for a cash consideration of RM207.6mn and recognized a gain from
bargain of RM116.0mn, being the fair value of the investment acquired. Based
on the offer price, FGV’s 20% portion is valued at RM551.4mn. That will
translate to a cash gain of RM228mn, or 6.2sen/share.
The offer price translates to a PE of 40.6x based on an annualised FY12 EPS of
22sen. However, the forward FY13 PE could be lower as we believe TWM’s
profit would accelerate ahead underpinned by lower raw sugar price. YTD, the
benchmark No. 11 raw sugar price has declined as much as 22%.
Given that FGV hold 20% stake, the success of the take-over depend on whether
FGV would sell its block in the company. Looking at the handsome gain it
expected to pocket from the disposal of the investment, FGV might be tempted
to realise its investment. The cash of RM551.4mn would also generate
additional interest income of RM6.6mn, assuming effective interest rate of 1.2%
as at Sept 30, 2012.
There might be possibility that the gain might be returned to the shareholder in
the form of special dividend, in our view, as the group still has balance of IPO
proceeds of RM4bn (as at Sept 30, 2012) which has yet been utilised.
Impact on Earnings
Assuming the take-over pulls through, a back of the envelope calculation
implies a net 3.8% reduction (net off after-tax interest income from proceeds)
in FY13 forecast. However, we are keeping our earnings estimate unchanged at
this juncture pending completion of the take-over offer.
Still a Sell
We maintain Sell recommendation on FGV with an unchanged target price of
RM3.80/share based on Sum-of-Parts valuation methodology. Despite the
downside to earnings, the SOP target price will increase slightly to RM3.83,
after taking into account the cash proceeds due to the holding company. Our
key immediate term concerns are, 1) larger than expected contraction in FFB
harvest vs. the industry, 2) continued margin contraction experienced by MSM,
and 3) the group has yet to successfully deploy IPO cash to acquire earnings
generating assets. Key immediate re-rating catalyst is value accretive M&As.
But anyway, this is just a valuation base on the fundamental figure at current situation, any major changes in crude palm oil (CPO) price, and given the concern that the IPO that subscribe by the Felda settlers, it should be have some strong support at IPO price.
Graph Source: Chart Nexus