IT has just been 100 days plus a few weeks since Datuk Zakaria Arshad took over the reins at Felda Global Ventures Holdings Bhd (FGV).

In this short period, he has already made an impact, scrapping the proposed acquisition of a 55% stake in Chinese edible oil company Zhong Ling Nutril-Oil Holdings Ltd for RM976.25 million. More recently, he said FGV had opted out of a proposed acquisition of a 37% stake in PT Eagle High Plantations Tbk for US$680 million or RM2.89 billion at the time the deal was made public in June last year.

In an exclusive interview with The Edge, Zakaria says FGV’s target of having operations encompassing an area of one million hectares of plantations by 2020 (including the harvest from settler estates) — set in 2012 — is no longer a priority. At present, FGV has a landbank of more than 431,000ha, an increase of 70,000ha since its debut on the local bourse in 2012. Settler estates come up to 475,000ha.

Armed with a war chest of RM4.459 billion from its initial public offering, FGV quickly expanded its landbank, acquiring estates in Sabah, Sarawak and West Kalimantan. The Eagle High Plantations proposal has been the most controversial to date, mainly because of the high valuation for the assets.

“I have to be very frank. I think it’s difficult for us to achieve that target of one million hectares. I believe I have to focus on our existing assets. I have to look into the quality aspect of things,” he says, adding that FGV is no longer in merger and acquisition mode.

Nevertheless, he does not deny that the going thus far has been difficult and he takes solace in self-help writer Robin Sharma’s words: Change is hard at first, messy in the middle and gorgeous in the end.

The 56-year-old Zakaria’s appointment as head honcho at FGV took effect on April 1 amid much fanfare, as he is an “anak Felda” or the son of a settler. As such, he is viewed as being close to the more than 112,000 settlers who supply fresh fruit bunches (FFB) to FGV’s mills and collectively own up to 19.4% of the company through Felda Asset Holdings Co Sdn Bhd and Koperasi Permodalan Felda Malaysia Bhd.

Despite the fanfare and the support of the settlers, Zakaria, over the past few months, has had to grapple with the many issues facing FGV — declining crude palm oil (CPO) prices, the group’s ageing oil palm trees, low FFB production, high cost of production and depleting cash pile, among others.

Then, last May, FGV requested an immediate withdrawal of Roundtable on Sustainable Palm Oil (RSPO) Principles and Criteria certificates of its 58 mills located all over Malaysia. Zakaria says it was mainly due to social issues related to its workers, and FGV has targeted to get back the RSPO status within three years.

The CPO third-month futures are at present around the RM2,300 per tonne mark, having gained from late August last year when it hit RM1,800 per tonne, its lowest since 2009. However, the commodity is on the decline, losing 17.24% from its one-year peak of RM2,779 on March 29 to last Thursday’s close of RM2,300.

In the first three months of this year, FGV suffered a 16% decline in FFB output compared with the previous corresponding period. The Malaysian palm oil industry saw a 10% drop in FFB output over the same period.

Another problem is FGV’s ageing trees. Of its 332,586ha of planted area, 43% are considered old at 21 years and above.

Only a third of the FFB milled at FGV’s mills are from its own estates. Another one third are from the settlers and the rest from smallholders. FGV prides itself as the largest CPO producer in the world, churning out three million tonnes annually.

“It has been quite challenging ... a lot of things have to be done, so many areas to look into,” says Zakaria.

These issues have also led to the company suffering losses.

For its first three months of FY2016 ended March, FGV suffered a net loss of RM65.54 million on revenue of RM3.75 billion. In the previous corresponding period, it registered a net profit of RM3.57 million on revenue of RM2.71 billion.

As at end-March this year, the company had deposits, cash and bank balances of 

RM2.4 billion and short and long-term liabilities of RM5.4 billion. This worked out to a net gearing of 0.47 times.

But Zakaria thinks that the worst is over. “In our experience, from our plantations, we gauge that the worst is over.”

FGV’s oil palm trees have not been as badly affected as those of other planters in Malaysia and Indonesia by the worst El Niño on record. Its FFB production fell 13.7% in the first half of the year from a year ago, compared with IOI Corp Bhd’s 20.9% and Sime Darby Bhd’s 14.8%.

FGV’s June production actually declined a lower 1.5% year on year compared with -14.6% and -19.7% in May and April respectively.

Public Investment Bank Bhd, in a report released last week, concurs, saying that it expects “to see improved results in the upcoming 2QFY2016 compared with the first quarter due to the stronger CPO prices and higher FFB production”.

However, it feels that FGV’s results could be relatively flat y-o-y as stronger CPO prices (2QFY2016: RM2,601/mt versus 2QFY2015: RM2,193/mt) will offset the weaker FFB output.

While Public Investment Bank has a “neutral” call on FGV and a 12-month target price of RM1.71, CIMB Investment Bank has a contrarian “add” call on the stock and a target price of RM2.08.

CIMB says catalysts for FGV include the scrapping of plans to buy into Eagle High, its plans to slash RM100 million in administrative costs in FY2016, improved FFB yields via better agronomic practices and the sale of assets that are loss-making.

Zakaria clarifies that FGV is not in a hurry to sell non-core assets that are profitable. “They give revenue and profit, so there is no rush to sell, I can take [my] time. But if they are losing money, I will have to chop them off fast.”

He cites Felda Prodata Systems Sdn Bhd as an example. Last year, it posted over RM20 million in profit.

In the past, FGV has sold part of its downstream business, namely TRT-ETGO in Canada, which was loss-making. However, it is keeping TRT US, which refines coconut oil and tallow in Boston, Massachusetts.

“We are looking to expand this, as it is making money. It gives us a lot of money, so [there is] no point for us to sell it. Last year, it made about US$20 million,” Zakaria explains.

There are indications that FGV’s upcoming financial results will be positive, with the company returning to the black.

CIMB forecasts FGV raking in RM162.5 million in net profit on revenue of RM15.74 billion for FY2016. In FY2015, the company registered a net profit of RM139.6 million from RM15.7 billion in sales.

Now, the question is, will Zakaria be able to deliver a much improved FGV, considering the tide of scepticism against the group following disappointing results and a string of expensive acquisitions? Given FGV’s political and socioeconomic origins, the concern for investors has been — since the beginning — whether the major shareholder’s interests are aligned with the minorities’.

That aside, Zakaria is personable and well liked within the group.

“Zakaria is experienced. He will do well if he gets some decent advisers. His positives are his people management skills. He’s a people person, so he can get difficult things done as he can get people to work with him,” says an industry player familiar with FGV.

Possibly in line with the better outlook painted by Zakaria, FGV’s shares have started to gain momentum. The stock closed last Friday at RM1.85, giving the company a market capitalisation of RM6.75 billion. Over the past eight weeks, it has gained almost 41%.

While some may attribute the share price performing to the low base (FGV’s net asset per share as at end-March was RM1.77) at which it is trading, others say it is possible that the high volume could be because of predators looking to buy into the company on the cheap.

One name that has cropped up several times is Tan Sri Syed Mokhtar Albukhary and his plantation vehicle, Tradewinds Plantation Bhd, which is under Tradewinds Corp Bhd.

It seems that Tradewinds Plantation is looking at a corporate exercise that may see it emerge as a substantial shareholder in FGV. But then again, talk of Syed Mokhtar eyeing a stake in FGV has been making the rounds since 2013.

On this, Zakaria says he is not aware of any potential suitors, either Tradewinds Plantation or other companies.

The substantial shareholders in FGV include the Federal Land Development Authority (17.29%), Felda Asset Holdings (13.66%), Lembaga Tabung Haji (7.78%) and Koperasi Permodalan Felda (5.74%). 

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