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Wednesday, December 3, 2014

Najib's prized FGV in danger of becoming another FINANCIAL DISASTER like Malaysia Airlines - Tony Pua

Najib's prized FGV in danger of becoming another FINANCIAL DISASTER like Malaysia Airlines - Tony Pua
Last week, Felda Global Ventures Holdings Bhd (FGVH) reported its first quarterly loss of RM12 million for the quarter ending September 2014 since its much-hyped public listing. The financial markets have responded by selling down the stock further, with the stock hitting a low of RM2.99 since the announcement. FGVH closed at RM3.08 as of yesterday, which represented a 42.9% decline since its listing in June 2012.
The performance of FGVH was terrible because the 9-month results only achieved 53% of the market consensus full-year profit forecast thereby significantly disappointing the investors.
In October, the Minsitry of Finance had responded to my question of the increasingly weak financial performance by FGVH by attributing it entirely to the falling commodity prices. As I’ve responded in earlier statement in October, if the terrible performance of FGVH was solely attributable to crude palm oil prices, then surely all other plantation companies will be afflicted with the same poor performance.
However, over the past 6 months for example, FGVH was the worst performer of all plantation stocks listed on Bursa Malaysia. Based on data as at 15 October 2014, FGVH stock price dropped by 29.1% compared against its peers – IJM Plantations (-6.3%), IOI Corp (-2.7%), Genting Plantatins (-9.4%) and Sime Darby (-1.6%). The closest poor performer was KL Kepong whose price dropped by 16.6% over the same period.
Therefore, with the latest results, it is clear that the worsening performance is caused by factors well beyond just falling commodity prices.
The results showed that there is a clear drop in productivity. FGVH actually managed to reduce its total palm fresh fruit bunch (FFB) production by 1% in the 9-months of 2014 despite having added around 5% of additional mature palm oil area from the RM1.2 billion acquisition of Pontian United Plantations last year. FGVH has blamed the decline in productivity on the lower rainfall. However the excuse can barely hold water because comparatively, Malaysia’s average FFB production actually increased by 3% over the same period.
FGVH also suffered a loss of RM52 million arising from derivative contracts in its Canadian business for the quarter. This was clearly a direct consequence of a drastic increase in the exposure to risky and volatile trading instruments. FGVH’s “investment” in commodity futures increased sharply from a mere RM118,500 as at September last year to a whopping RM1.15 billion for the current period.
FGVH also dabbled with foreign currency forward contracts, increasing its exposure from just RM233,000 to RM1.2 billion over the same period.
The shareholders of FGVH, including FELDA, Lembaga Tabung Haji and Employees Provident Fund must be concerned about the substantial increase in the risk exposure, which is big enough to cripple the entire FGV group.
The latest analyst report by CIMB on FGVH dated 27 November was damning, where the Bank downgraded the stock from a “Hold” to a “Sell”. The report stated that
Overall, we became more negative on FGV following the briefing as there was no mention of concrete plans to turn around the downstream business, which has been a consistent drag on the group’s earnings. The loss-making downstream business, poor [third quarter] results, weaker yield achievement by its estates compared to the industry, possible earnings dilution and weaker balance sheet position after the acqusition of Asian Plantations Limited lead us to downgrade the stock from Hold to Reduce.
FGVH may remain profitable for the current financial year. However, the signs are crystal of a consistent deteriorating performance. The Chairman of FGVH, Tan Sri Isa Samad together with the top management of the company must take collective responsibility for FGVH’s declining results. This is especially since FGVH in its 2012 Annual Report boasted that
FGVH’s stunning debut on the main market in Bursa Malaysia in 2012 was a global sensation. This is just the start of our metamorphosis into a global powerhouse.
Dato’ Seri Najib Razak, as both the Finance and Prime Minister, who promised Felda settlers the stars during the listing exercise must therefore take decisive and immediate actions to stem the decline in the company. Otherwise, the latest loss incurred by FGVH may signal the start of another winding road to financial collapse just like the Malaysian Airlines System.
Tony Pua is MP for PJ Utara

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