Felda returning to industry norms thanks to new leadership team

KUALA LUMPUR: Analysts are growing positive on FGV Holdings Bhd (FGV) following its restructuring plan initiated by Chairman Datuk Wira Azhar Abdul Hamid and its new management team, resolving various labour issues, measures to reduce leakages and new planting program to result in a significant improvement in cost efficiency, yields and profitability.

FGV remains one of the biggest plantation land owners in the country, yet trades at an earnings value per hectaore of about US$9,500, which AllianceDBS Research Sdn Bhd (AllianceDBS Research) said was a 57 per cent discount to the average of US$22,000 under its Malaysian coverage – indicating significant improvement potential.

“We believe that the expertise that the new management team can offer would bode well for FGV,” it said in a profile snapshot yesterday.

This comes as FGV has been through a tumultuous three to four years as its top officials were embroiled in corruption allegations, causing investors to lose confidence in the company.

Recall that FGV raised about RM10 billion from its initial public offering in 2012 at a listing price of RM4.55.

“We believe the appointment of WiraaschairmaninSeptember2017 was the first positive step towards restructuring and transforming FGV,” AllianceDBS Research affirmed.

“The open letter by Wira on FGV’s restructuring plans attest to the new management’s seriousness in resolving the company’s issues. The group of new officers – namely Datuk Haris Fadzilah Hassan as chief executive officer and Tuan Syed Mahdhar Syed Hussain as chief operating officer of plantations – would be able to drive the company forward with their previous management experience across plantations and other industries, in our view.”

Among some of the issues resolved under the new leadership include labour issues, better foreign labour quotas and new sources of labour workforce. AllianceDBS Research outlined that labour shortage is a serious issue when it comes to upstream plantation players as a shortage of labour would mean that FFB will go to waste.

“We believe that the weaker fresh fruit bunch (FFB) yields, crude palm oil (CPO) production and higher overall cost of production in previous years were primarily due to the labour shortage which has been affecting FGV over the last few years,” it said.

“Also, FGV has been operating at an average of only 67 per cent of the required labour from FY15 to FY17. This was largely due to the relatively low foreign labour quotas given by the government.

“There was a point in time where FGV’s total labour estate force amounted to only 8,000-9,000 (about 30 per cent) out of the 30,000 labour force required due to the halt of foreign labour quota allowance.”