Kossan & Fgv.docx

FGV HOLDINGS BHD, FORMERLY FELDA GLOBAL VENTURES HOLDINGS BERHAD (5222) COMPANY BACKGROUND The company was incorporated in 2007 as a private limited company operated as the commercial arm of Federal Land Development Authority (FELDA) before being listed in the main market of Bursa Malaysia Securities Berhad as FGV Holdings Bhd (formerly Felda Global Ventures Holdings Berhad) on 28 June 2012. FGV Holdings Bhd is an investment holding company to overseas FELDA’s investments in upstream and downstream palm oil businesses as well as other agribusinesses. The company is one of the world’s largest CPO producers and the second largest Malaysian palm oil refiner with market capitalization amounting RM3.23 billion as at 3 December 2018. FGV operates with more than 19,000 employees in 11 countries around the world as follows: i.

Malaysia

ii.

Pakistan

iii.

France

iv.

Indonesia

v.

Cambodia

vi.

Spain

vii.

Thailand

United State of America

ix.

UAE

Turkey

xii.

x.

China

viii. xi.

FGV Businesses are organized into three (3) main sectors: Plantation Sector Total landbank of around 441,000 Ha (palm and rubber) in Malaysia and Indonesia Produce around 3 million MT CPO through 68 mills located in Malaysia 35% market share in cooking oil segment, through its flagship brand, SAJI 10 refineries around the world including joint ventures

Sugar Sector Refined sugar producer with 58% market share under MSM’s flagship brand, Gula Prai 3 sugar refineries located in Penang, Perlis and Johor with annual production capacity of 1..25 million MT

Logistic and Business Sector Operates 15 bulking terminals with capacity of more than 950,000 MT

Manage around 30% of Malaysia total palm oil exports. Possess 427 trucks for liquid and dry products, 2 jetty operations and 3 warehouses.

The Company's business segments including: i.

Plantation Sector:

-

Palm Upstream : engaged in Plantation estates activities, including cultivation, harvesting and production of fresh fruit bunches (FFB), and processing of FFB into crude palm oil and palm kernel (PK);

-

Palm Downstream : engaged in refining of crude palm oil (CPO), fractionation of refined bleached deodorized palm oil and Palm Olein, crushing of PK, processing and sales of biodiesel products, production of oleo chemicals, grapheme and nanotubes, and production of consumer bulk and packed products;

ii. Sugar Sector - engaged in sugar refining, and sales and marketing of refined sugar and molasses;

iii. Trading, Marketing and Logistics (TML) Sector - engaged in trading and transportation facilities, and iv. Others - engaged in rubber processing, research and development activities, fertilizers processing and production, sale of planting materials, information technology, security and travel.

SHAREHOLDER INFORMATION

No.

Names of Substantial Shareholders

Shareholdings

%

1

LEMBAGA KEMAJUAN TANAH PERSEKUTUAN (FELDA)

775,029,800

21.25

2

FELDA ASSET HOLDINGS COMPANY SDN BHD

452,921,192

12.42

3

KUMPULAN WANG PERSARAAN (DIPERBADANKAN)

285,809,600

7.83

4

URUSHARTA JAMAAH SDN BHD

283,710,100

7.78

5

KOPERASI PERMODALAN FELDA MALAYSIA BERHAD

191,266,608

5.24

6

KERAJAAN NEGERI PAHANG

182,407,575

5.00

7

OTHERS

1,477,006,625

40.48

ECONOMIC ANALYSIS Since FGV operates in 11 countries around the world, the company is vulnerable to the global macroeconomic climate. Global economic growth was settled at 3.7% and 3.6% for 2017 and 2018 respectively, due to the slowdown in China, Japan and the EU economy. The International Monetary Fund (IMF) projects the slowdown in global economic as global economic growth rate at 3.5% and 3.6% in 2019 and 2020 respectively following the increase trade tariffs between China and the United States lead to “Trade War” between both countries as well as the weakening sentiment in the global financial markets and a contraction in Turkey’s economy.

EU Economy

USA Economy

Steady growth but under pressure due to

-

weak productivity, ageing population and in some countries, high debt

The US settles at new normal of 2% while Eurozone is not far behind

-

Political risk is high

ASEAN Economy -

Increasing

consumer

spending

CHINA Economy in China’s economy will slow down, led by

Vietnam and the Philippines -

significant reduction in the property and

Rapid urbanization in Indonesia and industrial sectors Thailand

INDIA & MENA* Economy -

-

MALAYSIA Economy

India facing demonetization and GST Slight dip in growth (0.2%), though still one impact

of

MENA* – Successful implementation of

attributed

OPEC oil cut deal shoring up oil market

the highest in the ASEAN region; to

decline

in

oil

and

other

commodity prices

and economic outlook

Malaysia Economy Analysis The Malaysian economy in 2019 is expected to face another challenge as the global economy continues to grow at a moderate pace amid a trade policy uncertainty and weakening financial market sentiments. The rising trade tensions between the US-China together with the slower growth in emerging market economies and the US government shutdown, are leading to uncertainty in the Malaysian financial market.

Further challenges remain as the government continues to undertake structural reforms and recalibrate policies including fiscal, subsidy, product and labour markets as well as sectoral such as telecommunications, construction, property, the government-linked companies, media and energy.

Despite the slower global growth, the key driver in the Malaysian economy would be domestic demand largely supported by private sector spending. However, consumers sentiments remain cautious on spending due to the rising cost of living resulted from the reduction of government subsidies and the introduction new taxes by the government. To address the issue of high public debt and the reduction of government’s revenue since the abolishment of the goods and services tax (GST) and replaced with the Sales and Service Tax (SST), this could limit the government spending. As such, public consumption is projected to grow modestly due to the government policy on cautious spending.

Exports of palm oil and palm oil-based products together with oil & gas-based products accounted for about 23.0% of total exports. The slower global demand for palm oil and palm oil-based products as well as oil & gas-based products would affect Malaysian external trade and economy growth in 2019. In view of these situations, Malaysian exporters’ earnings could be potentially impacted and would influence investors’ confidence on the companies’ performances.

INDUSTRY ANALYSIS Palm oil industry in 2018 was considered challenging because of low production, low export, high stocks and low prices. However, the industry landscape is expected to better as the Crude Palm Oil (CPO) price in 2019 is projected to be firmer with the average price of CPO recovering at a level above RM2,500 per tonne. The firmer CPO price would hugely influenced by the higher biodiesel blending mandate in both Malaysia and Indonesia, the weaker ringgit against the US dollar and stronger palm oil demand from major markets such as India and China. According to CIMB Research, the higher biodiesel blending mandate by the world’s two largest palm-producing countries Malaysia and Indonesia, would increase the demand of palm oil and reduce stockpile. Indonesia has enforced mandatory use of biodiesel containing 20% locally produced biofuel (B20), while Malaysia’s mandatory B10 programme is expected to be kick off at petrol stations in second quarter 2019. Meanwhile, the recovery of palm oil demand in India is due to the Indian government’s import duty cut on CPO from 44% to 40%, and a 54% to 50% cut on the refined variety. India, the world’s largest importer of edible oils and Malaysia’s key export market, bought 2.51 million tonnes of Malaysian palm oil in 2018. In addition, other factor such as formation of an El Nino would impact on palm oil production, thus lead to to higher CPO prices.

Based on Malaysian Palm Oil Board (MPOB) forecast, palm oil exports is expected to improve by 4.3% to 17.2 million tonnes in 2019, from 16.5 million tonnes recorded last year, thus could contribute to increase export revenue by 10.7% to RM75 billion, from the preliminary revenue of RM67.74 billion in 2018.

Comparative with Industry Competitors Financial Performance of Six (6) Largest Plantation Companies in Malaysia in 2018 Key Financials

FGV

Sime Darby

IOI Corp

KLK

Revenue (mil)

13,467.26

14,368.89

7,417.60

18,400.50

1,902.90

1,305.59

PBT (mil)

-1,022.95

2,376.95

1,570.70

1,117.38

207.74

490.87

PAT (mil)

-1,142.12

1,885.40

1,236.70

804.10

146.95

374.10

T. Asset (mil)

18,739.46

27,491.68

16,742.60

18,996.06

7,834.32

2,918.39

T. Liabilities (mil)

14,271.38

11,586.27

7,586.30

7,571.11

3,713.75

337.30

Market Cap.

4.378 Bil.

35.318 Bil

28.469 Bil

26.474 Bil

8.435 Bil

5.703 Bil

1.20

5.13

4.53

24.80

10.44

27.40

Price (RM)

FUNDAMENTAL ANALYSIS Financial Performance of FGV from 2014 to 2018

Genting United Plantation

FGV’s revenue in FY2018 has dropped significantly by RM3.47billion or 20.5% to RM13.47 billion as compared to RM16.94 billion recorded in FY2017. The lower revenue in FY2018 is attributable to lower average CPO price, lower contribution from sugar division and logistic & support business. In tandem with the lower revenue, FGV recorded Loss Before and After Tax amounted RM1.02 billion and RM1.14 billion respectively, despite recorded profit amounted RM208.05 million in the previous year. This loss was mainly due to higher impairment amounting to RM859.89 million as compared only RM226.26 million recorded in FY2017. The impairment losses recorded in FY2018 include impairments of intangible assets, property, plant and equipment (PPE) and investment such as in JV companies. FGV’s balance sheet weakened further as at Dec 2018 with total asset declined by 8.86% or RM1.82 billion to RM18.74 billion. The significant drop in FGV’s assets was largely due to the decline in FGV’s current assets by RM1.04 billion or 16.27% from RM6.42 billion as at Dec 2017. Despite FGV’s cash increase substantially to RM1.26 billion as at Dec 2018, the company’s short term investments only left RM46.06 million from RM1.38 billion as at Dec 2017. Meanwhile, as at Dec 2018 FGV’s total debt decreased marginally to RM5.45 billion mainly attributable to lower long-term debt payable. Throughout 2018, FGV had made

repayment on its long-term debt amounted RM6.01 billion while the company has issued RM5.67 billion long-term debt. FGV’s Net Cash as at Dec 2018 remained healthy, despite it declined marginally to RM1.01 billion from RM1.69 billion as at Dec 2017. The decline was due to the lower cash flow from operating activities and financing activities. In tandem with the lower revenue in FY2018, the cash flow from operating activities has dropped drastically by 54.41% to RM737.41 million from RM1.62 billion as at Dec 2017. However, the lower cash flow from operating activities was offset by lower capital expenditure and other investing activities.

Ratio Analysis

FGV’s gross profit margin in FY2018 decreased to

TECHNICAL ANALYSIS ● MACD ● Relative Strength Index ● Moving average ● Support and Resistant

RECOMMENDATION

KOSSAN RUBBER INDUSTRIES BHD (7153) BACKGROUND

Kossan Rubber Industries Bhd. is a Malaysia-based company engaged in investment holding, manufacturing and sales of rubber products and provision of management services to subsidiaries. The Company operates through four segments: Technical rubber products, Gloves (other than cleanroom gloves), Cleanroom products and Others. The Company operates manufacturing facilities and sales offices in Malaysia and Hong Kong. Its subsidiaries are engaged in manufacturing of latex examination gloves; manufacturing and marketing of rubber based parts and products; fabrication and installation of machinery; trading of latex examination gloves; investment holding; investment holding and the trading of cleanroom products; distribution, and manufacturing of surgical, procedure and examination gloves, among others. The Company's subsidiaries include Perusahaan Getah Asas Sdn. Bhd., Kossan Latex Industries (M) Sdn. Bhd., Kossan Engineering (M) Sdn. Bhd., and Kossan Sdn. Bhd., among others.

Established in 1979, Kossan is one of the largest manufacturers of latex disposable gloves in the world with an annual production capacity of 25 billion pieces and the largest technical rubber products manufacturer in Malaysia with a total compounding capacity exceeding 10,000 mt. More than 80% of its products are exported to over 190 countries with 350 active customers mostly located in developed nations such as United States, U.K., Scandinavian Countries, Europe, China, Korea & Japan. KOSSAN manufactures and offers a wide range of products including highly technical input engineered rubber products used in automotive, infrastructure, marine, aviation, rail and mining industries through its Technical Rubber Product Division and latex disposable gloves through its Glove Division. The Group operates with 20 plants (19 in Malaysia, 1 in China) and has a total workforce to approximately 6,000 comprises both local and foreign nationals. Equipped with strong manufacturing capability, KOSSAN has been the preferred OEM manufacturer and business partner by many renowned MNCs for the past 2 to 3 decades. The Company is recognized for its capability in bringing to its customers various innovative products with a fair price and consistent product quality, professional business dealings and robust financial track record. KOSSAN has been profitable with zero loss making record since inception and the Company joined Bursa Malaysia as a public listed company in 1996. The Company has been in the radar of both the foreign and domestic investment community for many reasons, notably consistency in performance, proven execution capabilities, technical know-how in the rubber products industry, consistency in dividend payments and prudent management philosophies.

CORPORATESTRUCTURE

SHAREHOLDER INFORMATION

INDUSTRY ANALYSIS ● Growth Cycle of Industries ● Evaluate the competitive position of a particular industry ECONOMIC ANALYSIS

Malaysia Economy The Malaysian economy in 2019 is expected to face another challenge as the global economy continues to grow at a moderate pace amid a trade policy uncertainty and weakening financial market sentiments. The rising trade tensions between the US-China together with the slower growth in emerging market economies and the US government shutdown, are leading to uncertainty in the Malaysian financial market.

Further challenges remain as the government continues to undertake structural reforms and recalibrate policies including fiscal, subsidy, product and labour markets as well as sectoral such as telecommunications, construction, property, the government-linked companies, media and energy.

Despite the slower global growth, the key driver in the Malaysian economy would be domestic demand largely supported by private sector spending. However, consumers sentiments remain cautious on spending due to the rising cost of living resulted from the reduction of government subsidies and the introduction new taxes by the government. To address the issue of high public debt and the reduction of government’s revenue since the abolishment of the goods and services tax (GST) and replaced with the Sales and Service Tax (SST), this could limit the government spending. As such, public consumption is projected to grow modestly due to the government policy on cautious spending.

Exports of palm oil and palm oil-based products together with oil & gas-based products accounted for about 23.0% of total exports. The slower global demand for palm oil and palm oil-based products as well as oil & gas-based products would affect Malaysian external trade and economy growth in 2019. In view of these situations, Malaysian exporters’ earnings could be potentially impacted and would influence investors’ confidence on the companies’ performances.

The Ringgit is affected by the volatility of the financial market as short-term investors continuously rebalance their portfolio due to monetary policy differential as well as heightened policy uncertainty among developed nations. The balance of portfolio investment for the first half of 2018 was in the red (-RM40.9 billion). At the same time, a weakened external demand was also adding up to the downward pressure on ringgit. The external trade for this year remains challenging as global growth is dwindling. Growth in exports is expected to moderate at 1.5%, a 0.4 percentage point reduction from MIER's earlier projection, as certain downside risks became clearer. Imports growth is also revised downwards by 0.3 percentage point to grow at 1.9%. Both exports and imports are

expected to grow faster next year by 3.7% and 4.5%, respectively. The growth of exports of manufactured goods are expected to deteriorate, including for E&E products which accounted for about 40.0% of total exports. This is largely due to the knock-on effect of the US-China trade war. The December manufacturing PMI has shown that China's manufacturing output has contracted, alongside with an even larger contraction for Malaysia's manufacturing output.

FUNDAMENTAL ANALYSIS ● Evaluate the financial condition and operating results of a specific company TECHNICAL ANALYSIS ● MACD ● Relative Strength Index ● Moving average ● Support and Resistant