The current mood of exuberance over Felda Global Ventures Holdings Bhd's (FGV) share price stems from the new direction charted to strengthen its core operations, AllianceDBS Research said.
The research house said FGV had also reduced its administrative cost base and shifted focus away from mergers and acquisitions.
"While we believe those are indeed ideal goals for the group, from a near-term earnings perspective, many execution risks remain, while FGV also has to manage older average tree age than peers," it said in a note today.
Although FGV made a sequential turnaround in second quarter of 2016 (2Q16) on production recovery and traction on its austerity drive, more work is required as its core margins remain thin and the first half of 2016 (1H16) remains in the red on a core basis.
"A better 2H16 is expected from further production upswing and more cost savings, but we think prospects appear well priced-in at current levels," the research house.
AllianceDBS said its discounted cash flow (DCF)-based target price (TP) is at RM1.25.
"Given the implied downside from the current price, we have a 'fully valued' rating on FGV, which is a negative total of more than 10 per cent over the next 12 months," it said.
It said a strong, sustained recovery in crude palm oil prices may boost the share price higher than its fair value.
Meanwhile, Kenanga Research has maintained a TP of RM2.10 and a 'market perform' rating where the stock expected total return is within the range of three to 10 percent.
The rating was based on an unchanged price to book value of 1.2 times, while it rolled forward its valuation base year to the financial year 2017 estimates.
It expects a stronger 2H16 in line with potential pickups in production.
At lunch break, FGV's share price on Bursa Malaysia increased 12 sen to RM2.22 with 19.85 million shares changing hands.
Bernama
Tue Aug 30 2016
AllianceDBS Research says FGV has also reduced its administrative cost base and shifted focus away from mergers and acquisitions.
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