Major shareholder Felda considers return of land leased to FGV as earnings negative

KUCHING: Felda Global Ventures Holdings Bhd’s ( FGV) major shareholder Federal Land Development Authority ( Felda) was reported by media sources to be considering the return of land leased to FGV – which analysts have deemed earnings negative.

The research arm of Kenanga Investment Bank Bhd ( Kenanga Research) viewed that should the move materialise, FGV operations would be significantly affected considering that the group is currently leasing circa 355,000 hectares ( ha) from Felda, making up a massive 80 per cent of its group’s land bank.

Kenanga Research expected that the savings from the termination of Land Lease Agreement ( LLA) payments of circa RM300 million will not offset the substantial revenue decline of circa 10 to 15 per cent – circa RM1.5 billion to RM2 billion – arising from the drop in planted area.

“However, should FGV receive compensation for the early termination of the LLA, the company could be able to acquire new areas with more favourable age profile, thus avoiding the significant replanting efforts on the older leased area which we gather costs circa RM200 million for about 15,000 hectares annually,” it said.

That said, with the increasing scarcity of sizable land banks, the research arm expected any possible acquisitions to take time to materialise.

Given that the news appears to be only at preliminary discussion stages, Kenanga Research maintained its earnings forecasts of financial year 20172018 estimate core net profit at RM95 million to RM120 million, pending further confirmation and details from management.