MARKET DEVELOPMENT
FGV Rules Out Steering Committee, Shares Down
FGV Rules Out Steering Committee, Shares Down
01/11/2016 (The Star) - Felda Global Ventures Holdings Bhd (FGV) has dismissed a report suggesting the Government is considering a more active role in running the public-listed plantation company.
The report said the plan was to set up a “steering committee” to help with the decision-making process at FGV. Concerns about potential intervention by the Government sent the stock tumbling yesterday, as this could be seen as a sign by some investors that all is not well at FGV.
Shares in FGV settled down 19 sen, or 8.6% lower yesterday at RM2.01 – its lowest level since Aug 12.
“The board of directors of FGV would like to deny the existence or plans for such a committee and that it is not aware of any proposal to form a steering committee,” the company said in a statement in response to the article.
“FGV’s Memorandum and Articles of Association also does not contain any provision for the formation of a committee to be placed above its board of directors,” it said.
The group added that it was the fiduciary duty of its board of directors and management team to be collectively responsible for the overall conduct of its business.
“Furthermore, the group takes full responsibility for its performance in the best interest of its shareholders,” it said.
Shares in FGV have rallied by more than 50% since May on the back of rising crude palm oil prices and management’s new focus on improving the company’s bottomline.
But despite its recent price recovery, the stock price remained less than half of what it was when the company got listed in 2012.
“Recent news flows on FGV are likely to raise concerns among investors on the potential intervention by the Government in the running and decision-making of FGV and how this could affect the ongoing plans by management to focus on raising yields and putting merger and acquisition proposals aside,” CIMB Research said in reaction to the news report.
FGV turned profitable in its second quarter ended June 30, 2016 with a net profit of RM62.2mil on a revenue of RM4.14bil.
“We are negative on the proposal to set up a steering committee at FGV, as it will create an additional layer of cost in the group, which FGV is working hard to cut to improve its earnings performance,” CIMB Research said.
“We view this as the second negative development to have affected sentiment on FGV’s shares. Last week, Deputy Minister in the Prime Minister’s Department Datuk Razali Ibrahim had indicated that FGV was still negotiating the purchase of a 37% stake in Indonesia’s PT Eagle High Plantations Tbk in a written Parliamentary reply.
“This led to a selldown in FGV shares until FGV’s CEO clarified to the media that the group was not looking to buy into Eagle High,” said CIMB in a report yesterday.
JP Morgan and Bank of America have advised FGV not to go on with the deal, as the price tag of US$680mil was too high for a 37% stake in Eagle High.
Additionally, CIMB Research was also concerned about the 50% year-to-date jump in raw sugar prices to 22 cents per pound.
“This will eat into the profit margin for MSM Malaysia Holdings Bhd, 51%-owned by FGV, due to the fixed price ceiling on retail sugar prices of RM2.84 per kg.
“We estimate that at current raw sugar prices, MSM will be barely profitable in the retail sugar segment, which makes up 38.5% of total volumes of sugar sold, and this poses an earnings risk of 14% to our financial year 2017 forecast,” it said.
The report said the plan was to set up a “steering committee” to help with the decision-making process at FGV. Concerns about potential intervention by the Government sent the stock tumbling yesterday, as this could be seen as a sign by some investors that all is not well at FGV.
Shares in FGV settled down 19 sen, or 8.6% lower yesterday at RM2.01 – its lowest level since Aug 12.
“The board of directors of FGV would like to deny the existence or plans for such a committee and that it is not aware of any proposal to form a steering committee,” the company said in a statement in response to the article.
“FGV’s Memorandum and Articles of Association also does not contain any provision for the formation of a committee to be placed above its board of directors,” it said.
The group added that it was the fiduciary duty of its board of directors and management team to be collectively responsible for the overall conduct of its business.
“Furthermore, the group takes full responsibility for its performance in the best interest of its shareholders,” it said.
Shares in FGV have rallied by more than 50% since May on the back of rising crude palm oil prices and management’s new focus on improving the company’s bottomline.
But despite its recent price recovery, the stock price remained less than half of what it was when the company got listed in 2012.
“Recent news flows on FGV are likely to raise concerns among investors on the potential intervention by the Government in the running and decision-making of FGV and how this could affect the ongoing plans by management to focus on raising yields and putting merger and acquisition proposals aside,” CIMB Research said in reaction to the news report.
FGV turned profitable in its second quarter ended June 30, 2016 with a net profit of RM62.2mil on a revenue of RM4.14bil.
“We are negative on the proposal to set up a steering committee at FGV, as it will create an additional layer of cost in the group, which FGV is working hard to cut to improve its earnings performance,” CIMB Research said.
“We view this as the second negative development to have affected sentiment on FGV’s shares. Last week, Deputy Minister in the Prime Minister’s Department Datuk Razali Ibrahim had indicated that FGV was still negotiating the purchase of a 37% stake in Indonesia’s PT Eagle High Plantations Tbk in a written Parliamentary reply.
“This led to a selldown in FGV shares until FGV’s CEO clarified to the media that the group was not looking to buy into Eagle High,” said CIMB in a report yesterday.
JP Morgan and Bank of America have advised FGV not to go on with the deal, as the price tag of US$680mil was too high for a 37% stake in Eagle High.
Additionally, CIMB Research was also concerned about the 50% year-to-date jump in raw sugar prices to 22 cents per pound.
“This will eat into the profit margin for MSM Malaysia Holdings Bhd, 51%-owned by FGV, due to the fixed price ceiling on retail sugar prices of RM2.84 per kg.
“We estimate that at current raw sugar prices, MSM will be barely profitable in the retail sugar segment, which makes up 38.5% of total volumes of sugar sold, and this poses an earnings risk of 14% to our financial year 2017 forecast,” it said.