CIMB Research downgrades FGV on uncertainties after suspension of CEO and CFO

Datuk Zakaria Arshad, FGV group president and CEO and group chief financial officer Ahmad Tifli Mohd Talha have been suspended with immediate effect.

KUALA LUMPUR: CIMB Equities Research has downgraded Felda Global Ventures Holdings Bhd (FGV)  to a Reduce from Hold and lowered the target price from RM1.79 to RM1.45 following the suspension of two of its top officials.

The lower target price was to reflect a higher discount to sum-of-parts of 30% from 20% to account for its concern that this could negatively impact FGV’s future earnings, it said on Wednesday. 

However, key upside risk to its call are higher crude palm oil price and positive resolution on this issue, it said.    

FGV’s president/CEO Datuk Zakaria Arshad and chief financial officer (CFO) Ahmad Tifli Mohd Talha have been given leave of absence since Tuesday pending investigations on certain transactions under Delima Oil Products (DOP), a 72%-owned subsidiary of FGV. 

“We gather that Ahmad Salman (CEO of FGV Trading) and Kamarzaman (head of international sales for DOP) were also suspended,” it said.

In the interim, a board executive committee, comprising of two FGV directors Datuk Dr Omar Salim and Datuk Mohd Zafer Mohd Hashim, together with Azman Ahmad, head of logistics cluster will take over the responsibility to perform the functions of the group president/CEO.
The board appointed Aznur Kama Azmir, group financial controller of its plantation sector as the interim group CFO.

“We understand that the issue that led to the suspension of FGV’s CEO and CFO was the late payment of receivables from its customer Safitex to DOP. 

“This resulted in FGV recognising impairment of receivables of RM29.6mil in 1QFY17. The impaired amount accounted for only 0.2% of FGV FY16’s total revenue,” it said.

Zakaria in a media briefing on Tuesday explained that he had earlier refused an alleged instruction from FGV’s chairman to resign from the company on May 31, 2017. 

Zakaria added that he did not breach corporate governance practices to allegedly allow Safitex to purchase palm products without a letter of credit, which reportedly resulted in the delayed payment. 

“He indicated that Safitex had been a long-term business partner with Felda,” it said.

At a press briefing, FGV board led by its chairman Tan Sri Isa Samad said that the group is carrying out its own internal audits on the alleged irregularities in certain transactions between DOP and Safitex. 

This could lead to the issuance of “show cause” letters to the CEO and others to explain the matter. 

Isa that the CEO will remain suspended until the investigation is completed and no timeline was provided. 

“The news came as a negative surprise to us. We are of the view that the suspension of the CEO and CFO for an indefinite period of time will negatively impact the performance of FGV as it will lead to uncertainties with regards to its future direction. 

“FGV under its current CEO has been successful in cutting costs and improving its plantation performance through better agriculture practices which was partially reflected in 1Q17,” it said.

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