KUALA LUMPUR (Dec 29): As the dust settles on a graft probe and a public leadership tussle, the world’s biggest producer of crude palm oil is heading into 2018 with a plan to tackle its perception problem.
Zakaria Arshad, known as Zack, is back at the helm of Felda Global Ventures Bhd after he was forced to take a four-month break during the turmoil that also saw the departure of Chairman Isa Samad. Zakaria resumed duties on Oct. 16 after being cleared of any wrongdoing.
“Perception is one of the main challenges of FGV,” Zakaria said in emailed responses to Bloomberg, referring to the company’s commonly used acronym. “I believe, by recording a consistent financial performance each year, the negative perception of FGV will change. We should not be too defensive to perception but we fight back with our strategic plan and operational performance.”
In June, the investigation into an alleged breach of procedures involving a Felda Global subsidiary flared into a controversy that spilled over to Prime Minister Najib Razak’s government, rocking shares and prompting the appointment of a new chairman. Felda Global’s political links are unavoidable as the company is ultimately controlled by the Federal Land Development Authority, a body created to allocate land to farmers, many of whom are now shareholders.
Najib’s Barisan Nasional coalition also needs those farming votes to extend its 60-year grip on power as it prepares for a general election in 2018. Felda farmers, or settlers, make up the majority of voters in 54 out of 222 federal seats.
Bumpy Ride
Shares in Felda Global slumped 6.4 percent to RM1.62 on June 6, the day Zakaria was asked to go on leave, and further dropped to an eight-month low in August before climbing after Azhar Abdul Hamid was named new chairman in September. The company closed 3 percent higher at RM1.74 on Thursday, lifting its annual gain to 12 percent.
Zakaria, himself a planter’s son, said the management crisis and his four-month leave of absence made a “deep impression but very useful experience.” Next year, the company will focus on its core plantation business and aim to lift palm oil yields, oil extraction rates and operational efficiency. It has plenty of room for improvement across estates operations in terms of labor, mechanization and replanting, he said.
“Before we can convince investors, FGV needs to ensure that the current business performance is recovering by recording consistent profit growth and ensuring good governance in every aspect of the business,” Zakaria said.
After recording profit of RM38.8 million ($9.5 million) in the third quarter from a loss of RM73.6 million a year ago, he expects a positive financial performance in the fourth quarter and the whole of 2017 compared to 2016.
The company is aiming to cut administrative costs next year to below RM900 million.
Challenging Outlook
Still, 2018 will be challenging, with Zakaria seeing a lack of catalysts to boost palm oil prices. Crude palm oil production in Malaysia and Indonesia, the two largest growers, is forecast to rise amid lackluster demand, he said. Malaysian output may increase by 4 percent to 20.5 million metric tons in 2018. Felda Global’s production is seen rising 5 percent to 3.05 million tons next year from 2.88 million tons in 2017, he said.
The buying appetite in China, the world’s second-biggest importer, is uncertain as domestic stockpiles have doubled to 550,000 tons from the same period last year, Zakaria said. Other major importers such as India and Pakistan also hold ample inventories, while tariff increases in India have made palm oil less affordable, he said.
Palm oil will likely trade between RM2,500 and RM2,600 a ton next year, Zakaria said, lower than his earlier forecast of RM2,500-RM2,700 While seasonally low production from December to February may support prices, the strengthening ringgit may cap any gains.