AMIR HISYAM RASID
KUALA LUMPUR: THE land lease agreement (LLA) issue has dragged down Felda Global Ventures Holdings Bhd’s (FGV) return on equity and caused confusion among industry experts due to the complicated accounting entries, said analysts.
Hence, analysts view the possible termination of the LLA as positive for FGV’s long-term financial performance and short-term share price movement.
Public Investment Bank Bhd (PublicInvest) said with the termination of the LLA, FGV would no longer need to pay RM250 million annually for 20 years plus 15 per cent of its annual profits to the controlling shareholder, Federal Land Development Authority (Felda).
“Under the LLA, FGV has spent more than RM200 million annually to replant 15,000ha since 2013. It also needs to bear the cost of replanting in order to improve its landbank’s age profile of around 15.8 years old,” said PublicInvest yesterday.
However, the firm estimated that the potential LLA termination could cause FGV to lose more than 45 per cent group revenue due to the shrinking of its total plantation land from 418,044ha to 55,297ha.
PublicInvest raised FGV’s target price to RM2.35 from RM1.77 previously, and maintained a “neutral” call on FGV.
The stock traded 8.45 per cent lower to RM1.95 yesterday, from Friday’s close of RM2.13.
More than 41 million FGV shares changed hands, up 435.8 per cent from last Friday.
Hong Leong Investment Bank said the potential detachment of Felda-related land from FGV was positive for its near-term share price.
“While valuation appears attractive at the current share price, we believe a re-rating to FGV’s share price would only emerge when earnings improve in financial year 2017,” it said.
Felda chairman Tan Sri Shahrir Abdul Samad told NST Business last week it was open to cancelling the land lease with FGV and having Indonesia’s Martua Sitorus as a major shareholder in FGV. It was reported that Felda was seeking the return of the LLA land in a bid to extract higher returns.
Meanwhile, FGV said yesterday its board had not received any notification from shareholders. It said as far as the LLA was concerned, FGV deemed it a key component of its plantation business.
“Any merger and acquisition activity will only be considered if it enhances the shareholder value,” said FGV in a filing to Bursa Malaysia.