FGVH shares improve on new management team, asset disposal

The upcoming GE is also a factor driving the rm’s share price above expectations


Shares in Felda Global Ventures Holdings Bhd (FGVH) have been bolstered by improved earnings prospects under a new management team, as well as the company’s disposal of a non-core asset.

According to a research analyst, FGVH’s share price has been performing above market expectations, driven by the upcoming general election (GE).

The recent management changes have also sparked renewed confidence among investors.

“With the appointment of a new chairman, the company is looking at brighter business prospects under the new leadership,” the source who spoke under conditions of anonymity told The Malaysian Reserve (TMR).

“Management has signalled that they intend to undertake cost-cutting initiatives to improve the company at the operational level.”

FGVH’s share price appreciated 10.1%, or 17 sen, since Dec 28 last year, when it traded at RM1.69, gaining approximately RM620.5 million in market capitalisation over a period of three trading days.

The counter closed six sen higher at RM1.86 for a market capitalisation of RM6.79 billion yesterday, as 38.05 million shares exchanged hands.

Although it is still substantially below its 2012 initial public offering (IPO) of RM4.55, Malaysia’s second-largest palm oil refiner is starting to show signs of a business turnaround amid returning investors’ confidence.

The source added that a rerating could be on the cards for the plantation stock if the management is able to cut production costs to the desirable level.

TMR reported last year that the new leadership at FGVH — which sees Datuk Azhar Abdul Hamid (picture) chairing the company and the return of Datuk Zakaria Arshad as group president/CEO — could result in the company turning around its fortunes in the next three years.

For its third quarter ended Sept 30 last year (3Q17), the palm oil producer turned in a net profit of RM38.77 million compared to the loss of RM73.61 million recorded in the corresponding period in 2016, largely due to higher crop production and improved showings from its sugar and logistics divisions.

Meanwhile, MIDF Amanah Investment Bank Bhd plantation analyst Alan Lim said the market also reacted positively to FGVH completing its disposal of a 16% stake in insurance company AXA Affin General Insurance Bhd.

“This was a positive news and is driving the company’s recent share price appreciation, as it reflects management’s willingness to focus on core businesses, namely in plantation and sugar operations,” Lim told TMR when contacted.

“We also expect 4Q17 earnings to be good due to higher crude palm oil (CPO) prices and fresh fruit bunches (FFB) production.”

He said MIDF has set a target price of RM1.96 for the plantation stock over a 12-month basis, representing a 5.4% upside to FGVH’s last traded price of RM1.86, with downside risks including lower average CPO prices and FFB production.

FGVH initially operated as the commercial arm of the Federal Land Development Authority (Felda) prior to its listing, after which the company struggled to live up to expectations as the world’s second-largest IPO of 2012.

According to Bloomberg, the palm oil producer’s net income noted a 97% drop from the RM982 million achieved in 2013 to the RM31.47 million in 2016.

The decline was largely attributable to the fall in CPO prices and saw the company’s share price reaching a record low of RM1.19 in August 2015.