CIMB Research neutral on FGV’s sale of China Oils

July 15, 2019July 15, 2019 editor Analyst Reports, Plantations

KUALA LUMPUR: CIMB Equities Research is neutral on FGV’s sale of its entire 100% stake in FGV China Oils for Rmb165m (or RM100mil) to Grand Industrial Holding Co Ltd.

FGV China Oils is based in the southern city of Dongguan and is principally involved in the processing, refining, storage and marketing of edible oils in China.

The buyer, Grand Industrial Holding, is listed on the Shenzhen Stock Exchange and is involved in imports and exports of all kinds of commodities and technologies and domestic trade.

The disposal is in line with FGV’s plans to rationalise and divest its nonperforming businesses and streamline the group’s activities.

CIMB Research said the disposal consideration will be satisfied by cash and will be partially offset by the full settlement of an intercompany loan owned by FGV China Oils to FGV Capital, amounting to US$12.5m (RM51.5m).

“As such, we estimate the disposal consideration after settling the loans to be around RM48.5m. The proceeds from the disposal will be utilised as general working capital.

To recap, the group invested in FGV China Oils for Rmb320m (RM193m) on March 31,
2015.

However, FGV China Oils has posted losses ranging from Rmb25m to Rmb67m over the past three years.

As a result, the group’s shareholders fund has fallen over the years to Rmb107bn (RM65m) in 2018. FGV indicated that the financial impact of the proposed disposal before taking into consideration the estimated expenses in relation to the proposed disposal is not expected to be significant.

“Following the disposal, FGV will no longer need to consolidate the losses from FGV China Oils of around RM25m-27m over the past two years, which is positive.

“However, this is offset by the fact that the group will not be able to recoup the losses from its investment in the future following the sale. Overall, we are neutral on the newsflow.

“We maintain our hold call and SOP target price of RM1.18 (which assumes FGV China Oils to be worth RM91m close to the selling price). The key upside/downside risks are higher/lower CPO prices,” it said.

Source: TheStar