YESTERDAY’S takeover bid by the Federal Land Development Authority (Felda) has given an opportunity for FGV Holdings Bhd loyal investors to contemplate whether they wish to stick or exit the company altogether.
MIDF Research sees Felda’s offer as an opportunity for investors to exit the company and shift focus on other listed plantation companies which offer better earnings quality, notably in terms of fresh fruit bunch (FFB) yields and cost-efficiency.
“There are also many long-standing structural issues about FGV,” commented analyst Khoo Zhen Ye.
“This includes poor management which lead to weaker operational performance and undertaking value-destroying merger & acquisition (M&A) activities which have caused FGV’s share price to slump by -72.1% from its initial public offering (IPO) price of RM4.55.”
As a whole, the research house deemed Felda’s offer price which is mainly predicated on the prevailing higher crude palm oil (CPO) prices as “at a premium to our fair value”.
Yesterday, Felda proposed to acquire an additional 13.88% equity interest in FGV which brings the former’s total stake in the latter to 35.12%.
This follows the agency’s move to purchase 6.10% and 7.78% equity interest in FGV from Kumpulan Wang Persaraan (Diperbadankan) and Urusharta Jamaah Sdn Bhd respectively at an offer price of RM1.30 per share.
The share purchase effectively breaches the creeping threshold of 33% to trigger the mandatory take-over offer (MO).
Upon the completion of the proposed acquisition, Felda along with the persons acting in concert (PACs) will collectively hold more than 50% of FGV’s shares which renders the MO to be unconditional.
This means that Felda needs to undertake the MO exercise to acquire all the remaining ordinary shares in FGV not already owned by Felda and the PACs with an offer price of RM1.30 per share (note that the MO does not include the remaining voting shares in MSM Malaysia Holdings Bhd not held by FGV).
Kenanga Research also encouraged investors to accept Felda’s offer on grounds that it is fair despite the “mind-boggling gap between the offer price (RM1.30) and FGV’s IPO listing price of RM4.55/share”.
“Considering that the company has been less efficient in using its assets, it is only right that investors would ascribe a lower value to FGV’s assets,” opined analyst Adrian Kok.
“FGV’s financial position was also stronger back then with a net cash/share position (excluding the land lease agreement) of 89 sen (vs net gearing of circa 0.8 times currently).”
Additionally, the research house foresees a steep decline in CPO futures curve that implies more than RM800/metric tonne downside by end-of 2021. Above all else, the RM1.30 price tag is also a premium over its previous target price of RM1.25. – Dec 9, 2020
