According to a report in The Edge Weekly, it is believed that Felda Global Ventures Holdings Bhd (FGV) is in talks with two companies, one linked to businessman Tan Sri Syed Mokhtar Albukhary, and China-based China National Cereals, Oils and Foodstuffs Corporation or known as (COFCO) to take a strategic stake in the plantation company. If it is true, we believe that the pricing of the new placement as well as long-term synergy between the parties will be the key highlights in the deal. Pending further updates from FGV, we maintain our Neutral call with an unchanged TP of RM1.77.

• About Syed Mokhtar. Tan Sri Syed Moktar Albukhary, a Malaysian tycoon, has controlling interests in a few listed companies in Malaysia, namely DRB Hicom, MMC Corporation, Malakoff, Pos Malaysia, Bina Puri, Gas Malaysia as well as non-listed companies such as Tradewinds and Bernas. The plantation business is parked under Tradewinds Plantations Bhd, one of the largest oil palm and rubber plantation companies in Malaysia owning about 160,000ha landbank. Interestingly, former FGV and president Datuk Mohd Emir has joined one of Tan Sri Syed Mokhtar’s private outfits. Rumours surfaced last July saying that Tan Sri Syed Mokhtar was in preliminary talks to buy into FGV, but which was subsequently denied by the company

• About COFCO. COFCO is a state-owned food processing company, which is also the largest food processing, manufacturer and trader In China. It has controlling interests in 11 listed companies in Hong Kong, namely, China Foods Limited, China Agri-Industries, Mengniu Dairy, Fountain Set, Joy City Property, COFCO Meat Holdings and CPMC Holdings as well as four listed companies in China, namely, COFCO Tunhe, Jiugui Liquor, COFCO Property and COFCO Biochemical. It is involved in many industries ranging from Fortune edible oil, Great Wall wine, Mengniu dairy, Lohas fruit and vegetable juice, Le Conte chocolate, Tunhe tomato products, Joycome meat products, Joy City shopping mall, Yalong Bay resorts, Gloria hotels, Snow-Lotus cashmere, Zhongcha tea products, COFCO Trust to COFCO-Aviva Life Insurance. It is ranked no. 121 in the Fortune Global 500 and the top in total and assets and third in total revenue in the world agriculture industry.

• Any synergies? It is tough to see any potential synergies arising between Tan Sri Syed Mokhtar’s plantation arm and FGV given that both are in the plantation-related space. The entry of COFCO could potentially boost FGV’s venture into China’s downstream market however. Nevertheless, given the tightening capital control in China, COFCO’s strategic investment in Malaysia might experience stumbling blocks in the form of its own central bank.

Source: PublicInvest Research - 20 Mar 2017