They say it will be good for FGV’s long-term fi­nan­cial per­for­mance, short-term share price move­ment

New Straits Times - - Business - AMIR HISYAM RASID KUALA LUMPUR bt@me­di­

THE land lease agree­ment (LLA) is­sue has dragged down Felda Global Ven­tures Hold­ings Bhd’s (FGV) re­turn on eq­uity and caused con­fu­sion among in­dus­try ex­perts due to the com­pli­cated ac­count­ing en­tries, said an­a­lysts.

Hence, an­a­lysts view the pos­si­ble termination of the LLA as pos­i­tive for FGV’s long-term fi­nan­cial per­for­mance and short­term share price move­ment.

Pub­lic In­vest­ment Bank Bhd (PublicIn­vest) said with the termination of the LLA, FGV would no longer need to pay RM250 mil­lion an­nu­ally for 20 years plus 15 per cent of its an­nual prof­its to the con­trol­ling share­holder, Fed­eral Land Devel­op­ment Author­ity (Felda).

“Un­der the LLA, FGV has spent more than RM200 mil­lion an­nu­ally to re­plant 15,000ha since 2013. It also needs to bear the cost of re­plant­ing in or­der to im­prove its land­bank’s age pro­file of around 15.8 years old,” said PublicIn­vest yes­ter­day.

How­ever, the firm es­ti­mated that the po­ten­tial LLA termination could cause FGV to lose more than 45 per cent group rev­enue due to the shrink­ing of its to­tal plan­ta­tion land from 418,044ha to 55,297ha.

PublicIn­vest raised FGV’s tar­get price to RM2.35 from RM1.77 pre­vi­ously, and main­tained a “neu­tral” call on FGV.

The stock traded 8.45 per cent lower to RM1.95 yes­ter­day, from Fri­day’s close of RM2.13.

More than 41 mil­lion FGV shares changed hands, up 435.8 per cent from last Fri­day.

Hong Leong In­vest­ment Bank said the po­ten­tial de­tach­ment of Felda-re­lated land from FGV was pos­i­tive for its near-term share price.

“While val­u­a­tion ap­pears at­trac­tive at the cur­rent share price, we be­lieve a re-rat­ing to FGV’s share price would only emerge when earn­ings im­prove in fi­nan­cial year 2017,” it said.

Felda chair­man Tan Sri Shahrir Ab­dul Sa­mad told NST Busi­ness last week it was open to can­celling the land lease with FGV and hav­ing In­done­sia’s Mar­tua Si­torus as a ma­jor share­holder in FGV. It was re­ported that Felda was seek­ing the re­turn of the LLA land in a bid to ex­tract higher re­turns.

Mean­while, FGV said yes­ter­day its board had not re­ceived any no­ti­fi­ca­tion from share­hold­ers. It said as far as the LLA was con­cerned, FGV deemed it a key com­po­nent of its plan­ta­tion busi­ness.

“Any merger and ac­qui­si­tion ac­tiv­ity will only be con­sid­ered if it en­hances the share­holder value,” said FGV in a fil­ing to Bursa Malaysia.

Hong Leong In­vest­ment Bank says the po­ten­tial de­tach­ment of Fed­eral Land Devel­op­ment Author­i­tyre­lated land from Felda Global Ven­tures Hold­ings Bhd (FGV) is pos­i­tive for FGV’s near-term share price.

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