Short position

Long haul

IT’S the long haul for Hap Seng Plantations

Finally, the long-speculated takeover of Kretam Holdings Bhd by Hap Seng Plantations Holdings Bhd has happened.

Hap Seng has proposed to take over 55% of Kretam from its major shareholder Datuk Freddy Lim in a transaction worth RM1.18bil. The shares are to be transacted at 92 sen each.

If the proposal gets all the approvals, then Lim would be left with 15.3% of Kretam, which is a substantial block for the plantation company that is already facing low share liquidity issues.

Prior to Hap Seng’s proposed takeover that was announced on Monday, Kretam could not fulfil the shareholding spread in the company. It has been down to 21.7%, short of the 25% public free float, since December 2016.

Based on Kretam’s historical trading volume, Lim would not be able to easily dispose of the 15.3% in the open market easily.

Anyway, Lim has given an undertaking that he would hold on to his remaining block of shares for five years.

So, does this mean that there is another part to his disposal of shares in the plantation company – in at least five years from the completion of the exercise?

Hap Seng has also said that it would make the effort to rectify the shortfall in the shareholding spread of Kretam.

If there were further corporate developments such as a placement or the entry of a new strategic investor, it is probably going to take some time because Kretam’s plantations are underperforming at the moment.

Analysts are not excited about the transaction. They contend that Hap Seng is proposing to buy into Kretam at a high earnings multiple and price per acre. According to analysts, the proposed transaction values Kretam at a price earnings multiple of more than 70 times.

The proposed transaction tags Kretam’s price per acre at about RM38,000, which is higher than Hap Seng’s average cost per acre.

The valuations may be lofty, however, it also shows that Hap Seng has its work cut out for it to extract the value in Kretam’s plantations. Hap Seng has to be in it for the long haul to see the benefits.

Telling all

Companies on Bursa Malaysia are often reluctant to disclose sensitive information regarding their future financial performance in fear of reprimands by the stock market regulator.

For years, disclosing future financial expectations or pertinent financial data ahead of the release of quarterly financial announcements were seen as a big no-no by companies. Even though past reports by Bursa Malaysia regulators who have said that public disclosures are permitted, companies will err in the side of caution when making public such information.

Yesterday though, WTK Holdings Bhd gave a rare profit guidance on Bursa Malaysia when it told the public that it will incur impairment charges for the fourth quarter ended December 2017. The amount is sizeable and it gives clarity to investors of what to expect when its results are announced.

The ability to give guidance is somewhat not new in Malaysia. Analysts are often told of some detail as what to expect as they formulate their expectations for investors. The briefings that are available to analysts are not public but clients of brokerages will be able to garner some inclination over what to expect in a company’s earnings which is not available to the general public.

In the US and other developed markets, profit guidances is somewhat of a norm. It serves to inform investors as to what to expect ahead of the quarterly profit announcements and those guidances are valued as it gives clarity to investment decisions.

Investors then have some clue as what to expect. The frankness of companies is something that has to be appreciated in today’s world of governance and corporate disclosures and not penalised.

For companies on Bursa Malaysia, such guidance should be encouraged. Guidance serves to inform investors of changes to profit expectations and that will help in the investment decisions investor will make. More disclosure is always welcome and not penalised.

Rebound in prospects 

Felda Global Ventures Holdings Bhd (FGV) has been since it was listed a stock in question. From questionable investments to losses it has incurred, investors have wondered about the directio thr company is going.

The latest financial results though dispels some of the doubt. Felda made a net profit of RM76.6mil for the fourth quarter of its financial year compared with RM112.5mil in the previous corresponding quarter but at first glance, the number look more organic that before.

FGV reported an increase in profit before tax (PBT) by 60% to RM417mil for the financial year ended 31 December 2017 (FY2017) compared with RM260mil recorded in FY2016.

The gain was down to a better performance from its plantation and logistics & others segment (LO).

FGV said its CPO production increased by 12% to 2.99 million tonnes in line with the growth in fresh fruit bunch production from 3.91 million tonnes in FY2016 to 4.26 million tonnes in FY2017, while its average age profile improved from 14.9 years to 14.5 years.

The LO sector recorded a higher profit of RM45mil compared with RM8mil in previous year mainly due to higher throughput in its bulking business, and increased tonnage carried by the transport operations in tandem with the increase in CPO production volume.

As for its outlook, FGV is expecting to normalise its labour shortage by mid this year. It says this will improve harvesting efficiency, and is expected to increase this year’s FFB production by 9% to 4.85 million tonnes while reducing CPO production ex-mill cost per tonne to RM1,562.

The one drag on FGV since its listing was the age profile of its trees. In a recent report, it was noted that when FGV was listed in 2012, almost 50% of its palm trees were 21 years old and above – an alarming figure which analysts often highlight to be a big drag on the yield performance of the group’s estates.

However, fast forward to 2018, this long-standing issue is about to change for the better.

Thanks to the aggressive replanting between 13,000 ha and 15,000 ha annually by the group in the past six years, the rejuvenation process of FGV’s old age palm trees is starting to bear fruit.

FGV is expected to slash the percentage of old trees (21 years and above) to 33% this year and is set to reduce it further to about 25% by 2020. And that will only help with its prospects going forward.

Short Position , hap seng