Smart moves of settler’s son gives fillip to Felda Global

Zakaria-ArshadKUALA LUMPUR: Felda Global Ventures Holdings Bhd has turned into Malaysia’s best stock from its worst in just four months.

And it is largely thanks to new Chief Executive Officer Zakaria Arshad, says a Bloomberg report.

The company’s 28 per cent surge this quarter makes it the best performer on a gauge of Malaysia’s top 100 companies.

But Zakaria, 56, who took over as chief executive officer on April 1, isn’t resting easy, according to the report.

The shares are still 57 per cent below their listing price in 2012, when it was the world’s third-biggest initial public offering that year.
Zakaria, a plantation settler’s son, is going ahead with plans to sell assets and cut costs even as drought reduces the company’s output of crude palm oil.

Zakaria grew up tending to palm trees in Felda Palong 1, one the company’s estates about 150 kilometres southeast of Kuala Lumpur.

“I’m not satisfied with the share price, there’s still a long way more to go,” Zakaria told Bloomberg. “My yields will be reducing, I have to look at my cost of production, and I have to cut all these costs.”

“Perception is improving and people are seeing that we are more focused on the business,” Zakaria said. “We must make sure that we improve on our bottom line.”

Felda posted a RM65.5 million first-quarter loss from a RM3.6 million profit a year earlier as dry weather hurt crops and production costs climbed.
The stock slumped 62 per cent from 2014 until its removal from the FTSE Bursa Malaysia KLCI Index on June 22, 2015, making it the worst performer on the nation’s benchmark gauge for that period, according to the report.

Felda is set to release second-quarter earnings later this month.

Felda’s fresh fruit bunch production fell as much as 20 per cent in the second quarter from a year earlier, Zakaria said. The company’s full-year crude palm oil output might drop by 10 to 15 per cent this year, he told Bloomberg.

Total Malaysian crude palm oil production will be 17 million tons to 18 million tons in 2016 from a record 19.97 million tons in 2015, according to Zakaria.

Benchmark Malaysian palm oil futures, which set the tone for global prices, may average RM2,400 to RM2,500 a ton in 2016 from RM2,235 in 2015, according to Zakaria.

Prices, he added, might rise further if an extreme La Nina were to form and disrupt the supply of soybeans, a competing oilseed.

Futures closed at RM2,407 on Bursa Malaysia Derivatives on Friday and are down 3.1 per cent this year.

According to the Bloomberg report, Felda is continuing its plan to sell off non-core assets, including a stake in an insurance company, and loss-making units and land that doesn’t complement its business.

“I want to raise my cash reserve, sometimes it is easy to catch the opportunity with cash in hand,” he was quoted as saying.

Felda Global’s reserves were RM2.4 billion at the end of March from as much as RM6 billion when it was first listed after several acquisitions. It is trading at 1.1 times its book value, about 50 per cent cheaper than the Bursa Malaysia Plantation Index three-year-average.

It had RM5.4 billion of borrowings as of end-March, said the Bloomberg report.

Bloomberg quoted CIMB Bank Bhd analyst Ivy Ng as saying in a July 31 report that Felda Global had a lot of potential to unlock and that its share price was attractive.

Ng, who has returned 63 per cent for her call on Felda, has the only buy call out of 14 analysts recommendations, according to Bloomberg data.