MP SPEAKS It was announced last Friday, on June 12, 2015, that Felda Global Ventures (FGV) has made a proposal to acquire a 37 percent stake in PT Eagle High Plantations (EHP) for US$680 million (or RM2.55 billion) in cash and stocks from the Indonesian-based Rajawali Group.

In a ‘Flash Note’ issued by CIMB on Sunday, June 14, 2015, the acquisition was viewed as “negative” because the acquisition price of Rp775 (22 sen) per share was seen as expensive (EHP’s last closing price was Rp450 or 12.6 sen per share), the acquisition would not give FGV a controlling stake in EHP, the acquisition would dilute FGV’s net profit in Financial Year 2016 by 10 percent, the net gearing ratio of FGV will rise from 1.05X to 1.43X and the cashflow of FGV will be negatively impacted.

As a result, the CIMB analyst cut the SOP target price of FGV to RM1.69 and the call for a ‘reduce’ recommendation to FGV was maintained.

Yesterday, at the time of writing (11am Malaysian time), the share price of FGV had fallen by 16 sen from RM1.86 at the opening bell to RM1.70. This represents a 63 percent fall in the stock price of FGV when it first listed at RM4.55 per share.

While some have attributed the fall in the FGV stock price to the floods in Kelantan as well as the low crude palm oil (CPO) prices, a comparison of other palm oil stocks in Malaysia will show that FGV’s stock price has dropped the most in the past one year.

FGV stock price down by 57pct over one year

As of last Friday, June 11, 2015, the stock price of FGV has fallen by 56.6 percent over the past one year, compared with a decrease of 3.2 percent for United Plantations (UPL), a decrease of 6.2 percent for IJM Plantations (IJMP), a decrease of 8.7 percent for Genting Plantations and a decrease of 12.6 percent for Kuala Lumpur-Kepong (KLK).

FGV’s strategy of purchasing plantations with younger age profiles must be justified from a costing and valuation perspective. The CIMB ‘Flash Note’ clearly shows that the valuations which FGV is paying for EHP is expensive. Specifically, it stated that:

“The blended acquisition price for EHP of Rp775 represents a 72 percent premium to its last closing market price of Rp450 and is 267 percent above CIMB’s target price for EHP of Rp290 per share. The pricing is also 94 percent above the recent 6-for-1 rights issue price of Rp400 per share for EHP, which was completed in Dec 14.”

The answers which the FGV board and management must give to its shareholders, including the Felda settlers as well as the Malaysian public (via KWSP, KWAP and Tabung Haji shareholdings), is why was this acquisition proposed and at such a high price? Will the board and management take responsibility for the negative perception from the market, which has led to the continued decline in FGV’s share price?

ONG KIAN MING is the MP for Serdang.