PETALING JAYA: FGV Holdings Bhd shares soared about 13% yesterday after its chairman issued a letter updating shareholders on the status of the company and its plans moving forward.
FGV share price has been under pressure given the slew of bad news surrounding the oil palm plantation giant last year.
Weakness in the crude palm oil prices, which fell more than 30% year-on-year to RM1,831 per tonne in November, exacerbated the situation.
FGV shares closed 11 sen higher to 93 sen apiece yesterday. It was also in the top volume list.
On Monday, FGV chairman and interim group chief executive officer Datuk Wira Azhar Abdul Hamid wrote a seven-page letter explaining details on plans the group would be taking, including selling part of its RM350mil non-core assets, improving returns from its plantation assets and the appointment of new CEO.
CIMB Research said it was positive on FGV’s aggressive targets for its turnaround exercise but kept its “hold” call on the company’s stock. “If successfully executed, there could be upside to our earnings projection,” said head of research Ivy Ng in a report.
However, she pointed out concerns surrounding higher labour costs, potential provisions for the company’s 50% investment in Trurich and right-sizing its manpower, as well as rising competition for its sugar refining business.
“We will turn more positive when we see evidence of operational turnaround outstripping these concerns,” she said.
Ng said the research house estimated that FGV’s fourth-quarter 2018 earnings would remain weak, in view of lower average CPO price of RM1,902 per tonne during the quarter.
This compared to RM2,192 per tonne in the third quarter of 2018.
In the letter, Azhar said FGV is targeting its fresh fruit bunches (FFB) to yield about 16.9 tonnes per hectare in 2018 and 19.43 tonnes per ha in 2019.
FGV estimated that it could earn pre-tax profit of RM1bil per year at an average CPO price of RM2,500 per tonne.
The company also could save RM150mil this year from plugging leaks and addressing inefficiencies.
On plans to sell FGV’s non-core businesses, Azhar said it would announce further details in due time. “There are non-core businesses that take up resources and time but do not offer the rewards a reasonable investor would expect,” he wrote.
In addition, Azhar noted that some of the company’s joint ventures (JVs) were also underperforming.
“There are certain JVs that have not brought optimal benefits to the company. These are also being reviewed and announcements will be made as required,” he said.
According to Azhar, FGV has identified several areas for the development of strategic alliances or partnerships to capitalise on its strengths and plug capacity gaps.
He said FGV would announce its new group CEO in the next few days.