Sabri: ‘Company has robust protocols to address new investments carefully to ensure we
get assets that are a strategic fit.’

03/12/2012 (The Star) -   Eight is undeniably one the most sought after numbers among the Chinese as it denotes prosperity and wealth. More so if multiples of eight are used.

So this is why Felda Global Ventures Holdings Bhd's (FGVH) transformation strategy, that carries a “double eight” in its tagline, has caught the eyes of many. Under its Strategic Blueprint (2012-2010) FGVH hopes to grow eight times in eight years.

That is growth in terms of its size and capabilities.

By 2020 the company hopes to rake in revenue of over RM100bil and emerge as one of the world's top integrated and diversified agribusiness company with presence in the entire business value chain.

Its model: strategic mergers and acquisitions as such targets can never be met through organic growth. But the question is, can this be achieved? Mapping out a strategy is one and perhaps the easy part of the whole exercise, executing them, is an altogether different ball game. And given the wide publicity and hiccups that the stock garnered running up to its listing, its every move would be closely watched by many other segments besides the investing community.

After all, FGVH is no ordinary stock formed in 2007 as the commercial arm for the Federal Land Development Authority (Felda) to be its vehicle for global expansion.

Felda was a statutory body founded in 1956 to alleviate poverty among the rural Malays via a land resettlement scheme. It is FGVH's major shareholder with a 20% direct stake with another 17% held indirectly through wholly-owned Felda Asset Holdings Co Sdn Bhd.

FGVH's group president and chief executive officer, Datuk Sabri Ahmad, described the blueprint as a journey to transform the Felda group for the next 50 years with the listing of the stock the second largest at that point after Facebook Inc - in June serving as a catalyst for this.

“Felda's social re-engineering laid the foundation for the success in the last 50 years and now we are planting the seeds of growth for the next 50,” he said at a recent media briefing for editors. With a net cash of RM4.5bil post-listing the company can easily fund its M&A but analysts say that these have to be value and earnings-accretive to meet the impact its management have envisioned.

FGVH is already a major palm oil force in Malaysia with operations in over 10 countries. It is the third largest oil palm estate operator in the world and through 40% associate Felda Holdings Bhd it is the world largest crude palm oil (CPO) producer and the second largest Malaysian palm oil refiner. Besides this it is also the country's largest sugar refiner via its 56.3%-owned subsidiary, MSM Holdings Bhd. It is also involved in soybean and canola crops through its crushing and refining operations in Canada.

Such size gives it economies of scale, an advantage that it has above many of its peers. On the other hand large companies like FGVH are seen as not nimble and typically face difficulties when the market requires it to change. For instance, changing the culture and mindset will be a challenge.

Sabri said that the company had “robust protocols to address new investments carefully to ensure we get assets that are a strategic fit.” To meet the targets, Sabri also said that FGVH had a four-step roadmap in place with the initial thrust in the first three years to optimise existing businesses and partnerships.

Under the plan, FGVH is looking to position itself as a global leader in palm, top three in rubber and sugar and top three in the industrial fats segment.

To fast track this Sabri said that M&A was the chosen route and the company had identified South-East Asia and Africa for upstream expansion. RHB Research in a recent report estimated that FGVH capital expenditure for the financial year ending Dec 31, 2012 (FY12) to FY14 would likely rise to about RM300mil a year as opposed to the annual capex of between RM70mil-RM80mil now.

But more interestingly FGVH's hopes to replicate the unique Felda scheme in countries like West Africa, Myanmar and Cambodia.

The company is also improving its operation efficiency and going on an aggressive replanting programme to replace its mature oil palm tree, an issue which has been a concern with many analysts. At the same time it plans to buy estates with younger aged palm profile.

Early this year FGVH adopted a new business model after it signed a land lease agreement (LLA) with Felda to lease 347,584ha of plantation estate in Malaysia for up to 99 years. The deal not only made FGVH the world's largest oil palm planter but gave it control over cost of fertiliser application and replanting of estates. This meant that it is now able to directly drive efficiency improvements.

Because FGVH had to book in a fair value-decline on its LLA its net profit in the third quarter result dropped 40.1% to RM245.6mil compared with the same period last year. There was also a one-time IPO expense cost of RM41.5mil. During the period revenue had doubled to RM3.77bil.

For the nine months ended Sept 30, 2012, net profit declined RM40.3% to RM626.14mil from RM1.05bil previously, Minus the fair value change, its earnings would have only declined by a quarter in line with its peers who were also affected by weaker commodity prices. For the nine-month period revenue rose 62% to RM9.03bil from RM5.58bil previously. This increase reflected the sales of CPO by the group from March 1.

FGVH has identified talent as a key area in the transformation plus bringing diversity in the talent pool in a predominantly Malay company. This will bode well for the company as takes on a more global outlook.

The share price, however, has declined since its high-profile listing on June 28 closing at its IPO price of RM4.55 on Nov 30 with a market cap of RM16.60bil. The stock debuted at RM5.39 and had risen to a high of RM5.50 on July 4. Chances are the stock may see downward pressure because of the lower third-quarter profit posted.

Perhaps the double-eight play in its transformation plan will add some magic to its share price performance.