While the Felda Global Ventures story pales to the fairy tale it was hyped up to be, the listing had turned the once slender company into the richest kid on the plantation block. And when plantation land is running scarcer by the minute, RM4.4 billion burning a hole in FGV’s pocket can go quite far.

Indeed mergers and acquisitions make up 50 percent of what FGV intends to do with the proceeds.

As it is, it is the third largest oil planter in the world but CEO Sabri Ahmad said that FGV has greater plans.

He has been reported as saying that FGV intends to secure 150,000-ha of land in the next five years. Together with the 500,000-odd ha of Felda settler land it manages, FGV will by 2020 be overseeing an ambitious one million ha of plantations.

Industry experts believe that overseas acquisitions are the best bet, with plantation land in places like West Africa, leased out for up to 10 times cheaper than in Malaysia. The IPO proceeds and RM57 million it made from disposing its stake in Tradewinds (M) Sdn Bhd, could be used to grow its land bank tremendously.

Big plans

FGV did not return answers to questions asked by KiniBiz at press time, but its management has made it clear that it has foreign land in sight. In an interview with media consultancy company Prospect Group on Feb 14, Sabri said that it hopes to “replicate the Felda model in Myanmar (sic) and Cambodia.”

“We also want to replicate and share our experience in West Africa. West Africa is suitable for oil palm,” he said.

Sabri Ahmad

Beyond palm oil, Sabri was quoted as saying that FGV is “already negotiating with big players” in Burma and Cambodia to expand rubber hectarage to 100,000 hectares. He added that they are also seeking to grow sugar cane, to supplement its downstream businesses in this area.

“This will address our over dependence on palm oil,” he said.

But three months to its first IPO anniversary, FGV has yet to make any acquisitions locally or abroad, with speculation of it purchasing Sarawak Plantation land quashed soon after it surfaced.

“It’s not easy to acquire land so we have to give them some time. It’s not possible to also put a deadline on this as they shouldn’t be pushed to buy for the sake of buying,” an analyst with an investment bank who declined to be identified said.

However, she said FGV’s growth heavily hinges on its acquisition strategy.

Indeed, about half of FGV’s trees are aged 21 or older, but another analyst believes that its aggressive strategy of acquiring new land could also mean buying land with trees which are already in the prime.

This would mean harvesting even sooner than the three years it would take for its own new trees which is now planting at the speed of 15,000 ha a year to mature.

Sabri also told the Palm Oil Conference 2013 last week (Mar 6) that FGV had replanted 16,000-ha of palm oil in 2012 and will continue to replant for at least another three years.

Poised to gain from CPO upswing

MIDF analysts Nur Nadia Kamil and Syed Muhammad Kifni agree that much of the FGV story hinges on CPO sales. They said that much of FGV’s earnings is derived from its upstream activities and its landmark agreement with Felda Holding’s milling and processing subsidiary Felda Palm Industries (F Palm) is a major plus point.

They said that FGV has already recorded promising earnings from its CPO sales since inking the fresh fruit bunch and CPO sale deal in March 2012, and this spells brighter days ahead. They argued that this is because CPO and FGV prices are highly correlated at 89 percent.

“As CPO price is expected to rebound to circa RM3,000 levels, therefore we expect FGV share price to increase to nearly RM5.30 per share,” they said in a Jan 25 note.

Bucking the trend with a call buy on the stock, they said that an expected CPO upswing is enough to offset rising costs of production and drawbacks sustained from its aggressive replanting programme. Replanting will cost RM15,000 to RM20,000 per ha for the next 10 years.

MIDF’s bullish outlook on CPO, however, contradicts that of global palm oil experts who at the Palm Oil Conference 2013 last week said that palm oil price for the year would hover around RM2500 per metric tonne.

According to the March 2012 agreement, all of FGV’s CPO earnings will be sourced from F Palm produced oil. However, FGV’s old hectarage only provides a third of fresh fruit bunches sourced by F Palm to produce CPO. The remainder are sourced from Felda settlers and third parties.

As such, remisier and finance website NextTrade founder Alex Lu said, lower yield from its aged trees would also have a smaller than expected impact on its CPO earnings.

“Any decline will not be significant,” he said.

Tall order for FGV’s new man

But for now, FGV’s numbers have been “disappointing” at best.

“The jump in profit after tax for its quarter ending Sept 31, 2012 was due to gain on disposal of investment of RM47 million. If that is excluded, its average net profit is about RM195 million a quarter,” he said.

Eventually, net profit dropped for the financial year ended December 31, plunging by a significant 39 percent.

Solid acquisitions and focussed aggressive replanting can turn things around. But until then, Lu said, these numbers are not telling the market a very glowing story.

Emir Mavani

This is the challenge which CEO designate Mohd Emir Mavani Abdullah will need to step up to, which some analysts and industry veterans feel he can achieve.

Although he comes from an oil and gas background, industry veterans believe Emir’s international connections could enhance FGV’s international focus.

The company’s overseas ventures have garnered modest returns, and losses of hundreds of millions in North America. A veteran said that Emir who served as advisor to the Abu Dhabi government can change this and “add value” to FGV’s downstream products.

Already, he has announced that the group is looking at at least 12 potential acquisitions, while looking at measures to weather further weakness in CPO prices. What these measures are, however, remain a mystery.

Emir’s role leading Performance Management and Development Unit’s (Pemandu) Oil and Gas and Financial Services and Government Role in Business laboratories may point to a flair for innovation.

“For a CEO, Emir’s also pretty young at 48. He’ll come in with more energy and fresh perspective,” an analyst said.