This article first appeared in The Edge Financial Daily on September 18, 2018
FGV Holdings Bhd
(Sept 14, RM1.55)
Maintain neutral call with a target price (TP) of RM1.54: FGV Holdings Bhd (FGV) announced that the company had suspended its group president and chief executive officer (CEO) effective Sept 13, pending further notification by the board.
We gather that the move was following the Notice of Inquiry issued to Datuk Zakaria Arshad following the conclusion of internal investigations into 10 critical issues. It was mentioned in the announcement that each of these issues resulted in financial loss for FGV and its shareholders.
FGV said the Special Board Committee 2 (SBC2) will take over Zakaria’s responsibilities. The SBC2 members are four FGV directors — chairman Datuk Wira Azhar Abdul Hamid, Datuk Dr Salmiah Ahmad, Dr Mohamed Nazeeb P Alithambi and Datin Hoi Lai Ping. The news is not entirely surprising as FGV had announced it was investigating several of its business practices. This is due to “adverse findings” from an earlier probe into its investments.
In our view, the company’s operations should not be affected. Hence, we maintain our financial year 2018 (FY18) core net loss forecast of RM72.7 million. We expect earnings improvement in FY19 with a core net profit forecast of RM73.7 million (unchanged from the previous estimate). Our TP is based on 1.0 times price-to-book. The next key event to watch: the third quarter of FY18 earnings which will be released by end-November. Despite the weak earnings prospect in the near term, the share price is trading at its book value of RM1.54, hence suggesting a limited downside. — MIDF Research, Sept 14