Author: kltrader | Publish date: Tue, 17 May 2016, 10:04 AM
Targets to improve shareholders’ value
We met with the new CEO of FGV. We went away feeling a bit more optimistic of management’s new strategy. Improving profitability, governance and processes are key principles. And there will be no more M&A. But the task to quickly slash its high production cost, estimated at ~MYR2,300/t, is not without challenges. We maintain our SELL call for now and MYR1.33 TP based on 1x historical PNTA.Aims to bring back Felda’s glory days
45 days into office, Dato’ Zakaria Arshad, the new CEO of FGV, unveils his new management team, and shares his vision and strategies. Son of a settler, Dato’ Zak was a beneficiary of the widely successful Felda scheme initiated decades ago to eradicate poverty. He spent the last 32 years serving the Felda group under various capacities. His vision as the new CEO is simple - to bring back the glory days of Felda.Simplicity, the new motto
His first task since taking office was to remove the M&A team which implies there will be no more new acquisitions in the immediate term. He prefers to maximise internal capabilities and ensuring profitable growth by sweating existing assets, and readjusting investments including divesting non-core and non-performing assets. Dato’ Zak has pledged to improve profitability, financials, governance, and simplify business processes while remain committed to sustainability.Some results by year-end?
Without specifics, the CEO has set a target to show some results by yearend. We believe there are some low hanging fruits that the CEO can go after, starting with FGV’s ever growing administrative costs. After all, by our estimate, FGV’s all-in cost of production in 2015 was one of the highest in the industry at ~MYR2,300/t. But time is not in his favour with the new minimum wage set to kick in effective 1 July 2016, adding further cost pressures. There is no change to our earnings estimates.Source: Maybank Research - 17 May 2016
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