Blog Page 18

FGV – Fakta tanpa sebarang auta

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FGV bukannya hanya sebuah syarikat semata-mata tetapi merupakan sebahagian daripada tiang seri identiti orang Melayu pada abad ke 21. Ramai diantara mereka terperanjat dengan cara CEOnya dipecat, gara-gara hanya kerana menjalankan tugas yang diamanahkan kepada beliau.

Isu membabitkan FGV tidak harus dipandang enteng oleh mana – mana pihak. Orang Melayu sering terdengar pandangan sinis yang dilontarkan oleh orang lain bahawa FGV tidak maju disebabkan ianya syarikat yang diketuai oleh orang Melayu. Tanggapan yang sama turut didengar oleh wartawan Rembau Times dengan telinganya sendiri.

Untuk membolehkan pembaca, khususnya para pembesar UMNO memahami isu ini dengan lebih mendalam, pihak The Rembau Times ingin berkongsi pandangan ringkas ini berdasarkan fakta, tanpa sebarang auta dan disokong oleh data.

  1. Apakah Dato Zakaria bersalah dalam transaksi membabitkan Safitex.

Alasan yang digunakan oleh Tan Sri Isa untuk meminta Dato Zakaria berhenti menjadi CEO ialah oleh kerana tunggakan sebanyak RM 50 juta  membabitkan penjualan produk kepada Safitex LLC, iaitu sebuah syarikat perniagaan yang bertempat di Dubai.   Kejadiaan ini berlaku oleh kerana penjualan dibuat secara “open account” dan tidak membabitkan surat kredit (LC).

Bagi sesiapa yang pernah berkecimpung didalam perniagaan membabitkan kommoditi, pekara ini bukanlah pekara yang jarang-jarang berlaku. Ianya disebabkan terma-terma perjanjiaan jual beli dengan Safitex dibuka dengan had kredit. Maka, Dato Zakaria tidak bersalah didalam pekara ini.  Pendekatan yang harus diambil oleh pengurusan FGV ialah memastikan syarikat tersebut memperketatkan pengawasan kredit, menggunakan transaksi berstruktur dan memperbaiki sistem kutipan hutang.

2. Mengapa saham FGV telah jatuh dengan teruk?

Jawapannya senang sahaja. Sepanjang tempoh masaTan Sri Isa menjadi Pengerusi FGV hampir kesemua petunjuk keuntungan telah merosot dengan teruk.  

Keuntungan selepas cukai
Keuntungan selepas cukai jatuh dengan teruk.
FGV's Yield Per Mature Ha lags far behind peers
Pengeluaran tandan buah segar jatuh secara mendadak.
FGV's administrative cost cuts into profits
Kenaikkan kos pentadbiraan yang tidak terkawal

Dengan pendedahan Dato Zakaria, ada unsur-unsur tertentu yang memaksa syarikat tersebut membuat pelaburan yang tidak masuk akal meskipun pelaburan tersebut cuba dihalang olehnya. Jelas nampaknya Dato Zakaria begitu bersungguh-sungguh cuba membangunkan syarikat tersebut tetapi nampaknya usaha beliau mendapat tentangan oleh tangan-tangan ghaib.

3.  Patutkah Dato Zakaria diberhentikan dan tugasnya diambil orang lain?

Persoalan ini hanya boleh dijawap oleh Perdana Menteri. Nampaknya Dato Zakaria telah dijadikan mangsa hanya kerana darah Felda mengalir dalam tubuh badannya dan beliau tidak rela syarikat yang begitu berkait rapat dengan mata pencariaan warga Felda diperkudakan oleh orang lain. Lagipun, Dato Zakaria telah mula meletakkan FGV dilandasan yang betul. ‘Pelaburan tidak masuk akal’ seperti pelaburan ke dalam Cambridge Nanonsystem ditentang habis-habisan. Program Kawalan kos diberi keutamaan dan nampaknya sudah mula membuahkan hasil dengan penurunan kos operasi sebanyak RM 100 juta dalam pada tempoh tahun pertama beliau menjadi CEO.

4.  Apakah jalan terbaik untuk menyelesaikan isu FGV?

Jawapannya senang sahaja: Pecat Isa, rombak Lembaga Pengarah dan letakkan Dato Zakaria kembali menjadi CEO dan Ketua Pengarah. Ianya berbaloi kerana ianya akan:-

  • Membawa kepada lonjakkan saham diantara RM 0.30 hingga RM 0.50.  Nilai harga FGV begitu murah sekali bukan kerana ianya tidak baik dari segi struktur syarikat dan aset-aset yang dimilik tetapi oleh kerana pengurusan yang lemah atau sering diganggu oleh ‘mahluk – mahluk halus’.
  • Meredakan kemarahan warga Felda. Warga Felda sudah berada ditahap hilang sabar oleh kerana beban hutang yang begitu besar. Perbuataan oleh Tan Sri Isa ibarat menuang minyak ke atas api.
  • Menaikkan semangat kakitangan FGV.
  • Memberi peluang kepada Dato Zakaria untuk menyusun semula FGV. Biarlah mereka yang tidak sanggup berkorban demi kebaikkan syarikat tersebut dinyahkan. Biarlah beliau menjayakan programnya untuk menaikkan lagi keluaran tandan buah segar FFB sebanyak 30% menjelang tahun 2020. Biarlah beliau senyapkan segala tomahan yang dilontarkan oleh orang lain berkeneaan kebolehan pengurus berbangsa Melayu mengemudi syarikat besar dimana barisan pengurusannya rata-rata terdiri dari kalangan orang Melayu.

Penutup

The Rembau Times juga ingin memberi nasihat berkenaan tuil-tuil keuntungan yang perlu diperbaiki

  1. Rantaian bekalan. Kami tidak begitu gemar mendengar khidmat perkhidmatan penyumberan luar akan digunakan untuk mengendali rantaian bekalan. Ianya sepatutnya dibangunkan didalam FGV kerana ianya amat penting untuk dijadikan sebagai tuil keuntungan. Ianya boleh dibangunkan menggunapakai pangkalan data dimana setiap penghantaran didalam rantaian bekalan dikesan dan dipantau
  2. Jenama produk : Jenama produk FGV hanya tertumpu kepada jenama yang diketahui oleh orang Melayu. FGV perlu memperluaskan saluran pengedaran secara terpilih dan membangunkan jenama produk untuk pasaran bukan Melayu dan pasaran dunia ketiga.
  3. Menggalakkan rakan niaga menggunakan kemudahan kewangan berstruktur:  FGV harus menggunakan kemudahan kewangan berstruktur untuk rakan-rakan niaga. Contohnya pembiayaan gudang, kemudahan komoditi repo, kemudahan asas pinjaman berdasarkan komoditi, instrumen perlindungan nilai dan sebagainya. Dengan cara ini ianya dapat mengurangkan inventori dan penghutang dan dengan itu mengurangkan risiko kepada syarikat tersebut.

Diharap Perdana Menteri akan mengambil berat berkenaan nasib syarikat FGV.

Penyingkiran Dato Zakaria umpama ‘kerja gila’.

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Saham FGV dipukul badai sekali lagi apabila para pelabur bertindak menjual saham tersebut berhubung kait desas desus berkenaan penyingkiran Dato Zakaria sebagai Ketua Pegawai Eksekutif syarikat tersebut.

Harga saham tersebut telah  jatuh mendadak sebanyak RM 0.27 ataupun lebih dari 10 peratus dari RM 2.00 yang dicatiti dipertengahan bulan Mei kepada harga penutupnya petang tadi sebanyak RM 1.73.

Isu tersebut tercetus apabila  Pengerusi FGV Holdings, Tan Sri Isa Samad ,tidak menafikan bahawa usul penyingkiran Dato Zakaria sebagai CEO FGV Holdings dibincangkan pada mesyuarat Lembaga Pengarah yang berlangsung baru-baru ini.

The Rembau Times menganggap agenda menyingkir Dato Zakaria umpama ‘kerja gila’.  

The Rembau Times telah banyak melakukan kajian mendalam berkenaan FGV dan yakin Dato Zakaria dapat memulihkan prestasi syarikat tersebut.

Ini disebabakan Dato Zakaria hanya baru sahaja menerajui syarikat gergasi tersebut dan tidak diberi masa untuk melaksanakan agenda transfomasi.  Kebanyakkan masalah yang melanda FGV diwarisi  daripada pengurusan sebelum ini.

Semasa menjadi CEO, Dato Zakaria telah memberi pengkhususan khas untuk menguatkan sistem tadbir urus korporat FGV yang bermasalah. Hasrat beliau terbukti apabila isu berkenaan isu penipuan membabitkan anak syarikat FGV berjaya dibongkarkan.

Beliau juga kelihatan bersungguh-sungguh mengetatkan piawaian perakaunan terutamanya berkenaan penuaan penghutang. Ini merupakan pekara penting yang harus ditangani oleh pengurusan FGV disebabkan inventori dan penghutang FGV telah meningkat ke RM 4 billion sekitar penghujung tahun 2016. Tanpa adanya tadbir urus korporat yang efektif, FGV mungkin terdedah kepada banyak lagi kes penipuan dan sebagainya.

Pendekatan inilah yang dinanti-nantikan oleh para pelabur yang mahu melihat FGV ditadbir urus sebagai syarikat koperat dan tidak sebagai sebuah cawangan parti politik.

Beliau juga telah  mula menangani kos operasi FGV yang telah melonjak naik dalam dua tiga tahun yang lepas.  Isu kenaikkan kos, terutamanya kos pentadbiraan,  telah menyebabkan keuntungan syarikat tersebut jatuh secara mendadak.

Di samping itu, beliau telah meletakkan sasaran menaikkan pengeluaran tandan buah segar (FFB) dari 3.9 juta tan di 2016 kepada 5.3 juta tan menjelang tahun 2020.  Sebagai CEO, beliau perlulah diberi masa untuk menunaikan janjinya dan Rembau Times yakin sasaran ini boleh dicapai.

Namun sedemikian pihak The Rembau Times tidak menaruh sebarang keyakinan terhadap Pengerusi FGV, Tan Sri Isa Samad. Dibawah pentadbiraan beliau, hampir kesemua petunjuk keuntungan telah merosot dan mengakibatkan nilai saham tersebut jatuh secara mendadak.

Ini membawa kepada persoalaan cepu emas kenapa pula CEO yang nampaknya berkaliber dibuang sedangkan Pengerusi syarikat  berkontrevesi tersebut dikekalkan?

Jikalau kayu pengukur kebolehan seseorang CEO GLC diukur dari segi kaliber pengurusan, maka Dato Zakaria mestilah dikekalkan.

Ataupun adakah mesej tersirat yang tidak didedahkan?

Apakah mesej sekarang bahawa kaliber bangsa Melayu dibidang koperat tidak menyerlah dan kita terpaksa mencari CEO dari benua Eropah seperti mana yang terjadi kepada MAS?

Apakah FGV akan dijual kepada syarikat Cina?

Maka kalau begitu, CEO-nya mungkin kenalah berasal dari Tanah Besar Cina.

Ataupun apakah CEO tersebut berjaya membongkar pelbagai salah laku yang merisaukan sesetengah pihak berkepentingan?

Inilah persoalan-persoalan yang patut ditanya oleh Jemaah Kabinet.

Ataupun apakah Jemaah Kabinet tidak lagi berupaya memberi apa jua pandangan, walaupun isu tersebut membabitkan sebuah syarikat yang dijadikan kayu pengukur oleh kaum lain berkenaan keupayaan orang Melayu mengurus sesebuah syarikat besar.

Parti Pribumi mampu membuat kejutaan

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Kalau pada mulanya, part Pribumi Bersatu Malaysia dipandang enteng, tetapi nampaknya mereka sudah nampak mula membuka langkah dan merapatkan jurang diantara BN/UMNO. Ini tidak lain tidak bukan hasil daripada titik peluh barisan kepimpinan teratas yang tidak mengenal penat berserta dengan semangat kerjasama yang ditunjukkan diperingkat akar umbi.

Program Jelajah Semarak mendapat sokongan luar biasa
Program Jelajah Semarak mendapat sokongan luar biasa

Diantara program yang dilancarkan oleh Parti Pribumi ialah program Jelajah Semarak. Ceramah demi ceramah berjaya dianjurkan di kawasan-kawasan Parlimen yang dijangka akan menjadi kerusi panas menjelang Pilihanraya ke 14. Program itu juga mempamerkan kehebatan mantan Perdana Menteri Tun Dr Mahathir, yang meskipun menjangkaui umur 92 tahun, namun semangat kentalnya untuk terus berjuang tidak luntur sama sekali.

Beliau nampaknya masih bertenaga untuk menerangkan isu-isu nasional yang tidak diendahkan oleh pihak berkuasa dengan kiasan yang senang difahami rakyat. Diantara isu yang diterangkan beliau ialah perjuangan parti Bersatu, skandal 1MDB dan masa depan rakyat jikalau keadaan sedia ada terus dibiarkan berterusan.

 

Mukhriz masih diterima rakyat Kedah
Mukhriz disambut mesra ketika membuat walkabout di Jerlun.

Persoalan samada parti tersebut bakal mendapat sokongan daripada masyarakat terjawap sama sekali apabila hampir kesemua acara yang diadakan oleh parti tersebut, baik dari segi ceramah ataupun ‘walkabout’ mendapat sokongan luar biasa dari rakyat berbilang bangsa.  Pekara yang lebih menyerlah lagi apabila acara tersebut berjaya diadakan di tempat yang dilihat sebagai kubu kuat UMNO. Jelas rakyat mahrean masih menghargai jasa beliau sewaktu memangku jawatan Perdana Menteri . Hampir kesemuanya membuat andaian sama, iaitu kualiti hidup jauh lebih baik dibawah zaman pemerintahan Tun berbanding  dengan zaman sekarang.

Obama dan Trump cekap mengunapakai saluran elektronik
Obama dan Trump cekap mengunapakai saluran elektronik untuk meraih sokongan

Meskipun sedemikian, parti Pribumi perlu mengambil ikhtibar untuk terus maju ke hadapan kerana mereka bakal berdepan dengan cabaran yang luar biasa ketika turun bertanding parti menentang parti Barisan Nasional. Di antara kaedah yang boleh disempurnakan ialah penggunaan media elektronik, sebagaimana yang telah dilakukan oleh Barack Obama dan Donald Trump ketika bertanding dalam kempen pilihan raya presiden Amerika Syarikat.

Walaupun parti Pribumi tidak mampu bersaing dengan Barisan Nasional dari segi dana, sumber dan sebagainya, namun jurang tersebut dapat diatasi jikalau parti Pribumi dapat memperkasakan sistem organisiasi dengan aplikasi elektronik.

Untuk menjayakan kempen elektronik, parti tersebut mestilah mempunyai tiga asas , iaitu mesej yang terkandung didalam media elektronik, membangunkan jentera parti dan mengendalikan bilik perang untuk berkongsi maklumat melalui saluran Facebook, WhatsApp ataupun Twitter semasa berlangsungnya kempen Pilihanraya ke 14.

Seandainya parti Pribumi berupaya memperkasakan organisiasi parti, berdiri teguh dan tidak berpuak-puak, maka parti tersebut mampu memberi tentangan hebat kepada parti UMNO dan Barisan Nasional.  Sebagaimana yang dilakukan oleh Donald Trump,  kemenangan bakal dicapai dengan pengiraan yang jitu dimana setiap satu jentera parti sanggup berkorban untuk mengembangkan mesej khususnya kepada pengundi Barisan yang mampu beralih undi.

Sekiranya, parti Pribumi dapat mengembeling jentera parti sebanyak 20,000 orang, ianya sudah mencukupi untuk parti Pribumi membuat kejutaan. Ini kerana setiap satu 20,000 orang ini mampu menyampaikan mesej kepada 10 hingga 20 rakannya dan ini bermaksud peralihaan sebanyak 300,000 undi. Peralihan undi itu sudah cukup untuk membuat kejutaan di hampir 50 kerusi Parlimen dan seterusnya bakal melihat hasrat parti tersebut tercapai.

Penunjuk Amaran Awalan Ekonomi Malaysia yang hampir mula menyala

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Persepsi terbaru  membentuk pandangan bahawa nilai matawang negara akan bertambah kukuh ekoran langkah Bank Negara Malaysia pada penghujung tahun 2016 meminta bank-bank asing membuat komitmen bertulis untuk menghentikan dagangan ringgit di pasaran kontrak hadapan tanpa serahan (NDF) dalam usahanya melindungi nilai matawang negara.

Kalau dahulunya, media massa antarabangsa sering mengkritik kerajaan tetapi nampaknya mereka telah berubah hala dengan memberi gambaran positif seperti mana yang terkandung didalam laporan Reuters yang bertajuk “Malaysia slowly winning battle against FX speculators” .

Sebagai ringkasan, laporan Reuters memetik ulasan daripada pengurus dana asing yang menyokong langkah Bank Negara Malaysia mewujudkan pasaran tempatan untuk memperdagangkan matawang Ringgit berbanding suasana sebelumnya dimana matawang Ringgit diperdagangkan melalui mekansime kontrak hadapan tanpa serahan NDF di pasaran luar pesisir.

Persoalan cepu emas ialah samada laporan Reuters tersebut tepat ataupun sebaliknya?

Persoalan tersebut hanya dapat dijawab setelah kita mengetahui apakah bezanya diantara kedua-dua mekanisme tersebut dan menilai baik buruknya langkah tersebut melalui butiran data.

Perbezaan ketara NDF berbanding dagangan didalam pasaran tempatan boleh dihuraikan kepada tiga faktor dibawah :-

  • Mekanisme pembentukan harga,
  • Pemantauan kedudukan
  • Penyelesaian kontrek.

Mekanisme Pembentukan Harga dan Pemantauan Kedudukan

Dalam NDF, kerap kali berlaku situasi dimana harga Ringgit yang diperdagangkan melalui NDF jauh lebih rendah daripada harga pasaran antara bank di dalam negara.  Pekara ini wujud disebabkan oleh dua faktor. Pertamanya perbezaan kadar faedah diantara Ringgit berbanding Dollar Amerika, iaitu isu berdasarkan asas-asas ekonomi . Faktor kedua sebaliknya berdasarkan isu permintaan dan penawaran jangka pendek yang boleh dipengaruhi oleh penyangak mata wang asing. Melalui mekanisme terbaru, menjadi penghalang kepada penyertaan oleh penyagak mata wang asing kerana ianya akan jatuh dibawah pantauan Bank Negara. Maka langkah yang diwujudkan oleh Bank Negara merupakan perkembangan positif dari sudut tersebut.

Penyelesaian kontrek.

Pekara kedua berkenaan isu penyelesaian kontrek. Isu ini perlu dihalusi secara terperinci kerana ianya bakal mengundang risiko. Dalam pasaran NDF, Bank Negara tidak mengambil penglibatan secara langsung dan penyelesaian kontrek ialah dalam matawang Dollar Amerika dan tidak membabitkan sebarang aktiviti jual beli Ringgit berbanding Dollar Amerika dan dengan itu Rizab negara tidak akan berubah.

Akan tetapi didalam mekanisme baru, Bank Negara menjadi pembeli ringgit kepada setiap penjualan hadapan dan penyelesaian kontrek ialah melalui pertukaran dana, samada melalui penjualan hadapan ataupun kontrek pertukaran mata wang (currency swap). Dibawah mekanisme ini, Bank Negara terpaksa penyelesaian kontrek akan memberi kesan kepada Rizab negara kerana adanya mekanisme pertukaran dana.

Penjualan singkat matawang asing oleh Bank Negara

Perkembangan ini membawa kepada isu pokok iaitu aktiviti penjualan singkat matawang asing berbanding Ringgit di pasaran hadapan oleh Bank Negara Malaysia. Butiran terakhir yang diterbitkan pada penghujung bulan Apr ‘17 menujukkan kedudukan terakhir Bank Negara ialah penjualan singkat  matawang dollar Amerika sebanyak USD $19 billion bagi instrumen dengan tempoh kematangan kurang daripada setahun (attach link).

Kedudukan tersebut ,yang dahulunya hanya US $3.3 ribu juta pada  Apr 2016 telah membesar hampir enam kali ganda kepada US $19.3 ribu juta dalam tempoh masa setahun, iaitu tempoh tahun pertama Datuk Muhammad bin Ibrahim memangku jawatan Gabenor Bank Negara dari Tan Sri Zeti.. Dalam tempoh yang sama, rizab negara tidak banyak berubah dari paras USD $96 ribu juta.

Hakikat inilah yang ingin dibawa kepada perhatiaan para pembaca.

Kajian berkenaan mekanisme baru Bank Negara

Jikalau kedudukan penjualan singkat matawang US Dollar terus mengembang dan mencecah paras bahaya USD $30-$40 ribu juta, sementaranya rizab negara tidak mengembang oleh kerana faktor akaun semasa yang lemah, ianya bakal mewujudkan risiko besar kepada negara.

Ini disebabkan rizah bersih, dimana ditolaknya penjualan singkat matawang dari rizab sedia ada, akan susut kepada USD $50 ribu juta. Tahap ini bakal mewujudkan tekanan spekulasi hebat dipasaran NDF tanpa adanya benteng pertahanan kukuh oleh Bank Negara dalam bentuk rizab yang besar.

Buat sementara waktu, pihak The Rembau Times berpendapat nilai kedudukan penjualan singkat US$19 ribu juta masih dalam kawalan tetapi hampir mengjangkaui paras berjaga-jaga. Pihak The Rembau Times akan terus membuat pemantuan kedudukan penjualan singkat matawang US Dollar oleh Bank Negara bersertakan ulasan seimbang bagi pihak pembaca yang dihormati.

Should FELDA ‘Hold’ or ‘Fold’ FGV

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FGV - Should Felda Hold or Fold?

Felda Global Ventures , one of the world’s largest vertically integrated plantation companies, is also at the moment the most politically important company in Malaysia. Felda settlers, who control over 60 parliamentary seats, grumble that they have been forced to sustain losses due to the collapse in FGV’s share price from its IPO price of RM 4.55 to RM 2.00 The question that has not been answered is whether or not the Company is capable to turn around its performance and consequently support a much higher share price.

Let us first start by providing all the positive conclusions to our in-depth analysis of FGV.

  • As a vertically integrated palm oil plantation company, FGV is in the right business as demand is sustainable and FGV can achieve economies of scale through its huge operations. FGV’s is very well positioned in terms of its current corporate structure and has benefitted from synergistic acquisitions, namely of Felda Holding Berhad, which was acquired at a very attractive price.
  • FGV has numerous corporate assets such as effective ownership of a sizeable land bank, vast downstream operations and tertiary high technology palm derivative manufacturing operations through investment in Twin River Technologies (TRT), which has begun to show strong progress.
  • FGV has access to major markets, such as North American, Middle East, Indian sub-continent and should benefit from the growing rapprochement between Malaysia and China, largely on the back of efforts by Prime Minister, Dato Seri Najib.
  • FGV has a very manageable debt burden profile relative to its cashflow generating capabilities.
  • Felda has addressed a key leadership issue by appointing  Dato’ Zakaria Arshad as FGV’s new CEO. The Rembau Times is also supportive of Dato’ Zakaria Arshad as he hails from Felda Palong, in Gemas, and can be considered as a “son of Rembau.” Dato Zakaria has also instituted new measures to address the poor profits inherited from previous management.
Rembau Times supports FGV's new CEO Data Zakaria Arshad
Rembau Times supports FGV’s new CEO Data Zakaria Arshad

However, the question politicians are most concerned with is whether or not they can promise Felda settlers that FGV’s share price will recover to its pre-IPO level of RM 4.55. The short answer is that this is very unlikely in the short term, unless the Government sells Felda to a Chinese buyer. FGV’s net profit has declined sharply by over 90% steadily from 22 sen per share in 2012 to 0.8 sen per share in 2016. The production yield from its estates has declined by 30% from 19.1 MT/Ha to 14.5 MT/Ha. Over the same period, Its CPO production has declined 20% from 3.3 million MT in 2012 to 2.66 million MT. The Trading, Marketing and Logistics segment, which used to generate RM 300m in profits when managed by Felda Holdings Berhad now barely makes a profit.

Replace Isa with Shahrir
Under Tan Sri Shahrir Felda is now asking tough questions of FGV

With so much potential asset generating capabilities, why is FGV still struggling to make a profit? Why is its share price languishing 50% below its IPO price?  Felda itself is seen to be losing patience and recently, there have been news report indicating Felda’s intention to seek the return of its land currently leased out to and managed by FGV because it feels that it could extract higher returns.

image

The Rembau Times is unafraid to state that the idea to terminate the Land Lease Agreement does not make sense financially. Not only will it lead to negative consequences for FGV, its creditors and the market as a whole, it exposes Felda to ownership of an upstream asset without any supporting downstream facilities. Felda will not be better off having the plantation managed internally as the key downstream and logistics assets are now owned by FGV. In fact, it will create yet another issue which can be capitalized by the Opposition.

Current management may have inherited legacy cost and operational issues
FGV’s current Chairman, Tan Sri Isa alongside  previous CEO, Emir Mavani.

However, Felda should move to replace FGV’s current Chairman, Tan Sri Isa with Tan Sri Shahrir Samad. This seems sensible as Felda is the major shareholder of FGV, with a shareholding of 33.7% and Tan Sri Isa has been associated with the poorly conceived idea of acquiring a minority stake in PT Eagle High at an inflated price. This was viewed as a political decision and roundly criticized by the market and led to a collapse in the share price and eventual exit of blue chip investors like KWSP.   Tan Sri Shahrir has a generally better aura than his predecessor and has a reputation of telling it as it is.  A no-nonsense Chairman will also ensure that Management is kept to task to deliver its targets and profits.

There are some issues that should be tackled by FGV’s management immediately.

The first has to do with its cost structure.

FGV's administrative cost cuts into profits
FGV’s administrative cost cuts into profits

Since its listing, FGV’s Selling, General and Administrative (SGA) expenses as a percentage of sales has risen from 0.80% to 4.20% in 2016.  In absolute terms, FGV’s SG&A was RM 110m in 2012 but has now increased to RM 727m. Whilst part of this was a result of the acquisition of FHB, there was still an increase of RM 300m in SGA costs from RM 448m in 2014. This increase in cost has cut deeply into FGV’s profits. In this regard, the new CEO has promised improvement on this matter and has reduced administrative costs by RM 127m and targeted to reduce CPO production costs by 9% to RM 1,451 per mt.

CPO Spiraled out of control in 2016

The second issue relates to internal controls and risk management capabilities. This issue was evidenced by the fraud losses discovered in 2016 at FGV’s overseas joint venture subsidiary in Felda Iffco Gida Sanayi (“FIGS”) and losses in the Trading Marketing and Logistics (“TMLO” segment), which FGV’s attributed to poor market positioning in the futures market. FGV needs to strengthen its internal controls as its inventories and receivables have increased to RM 4b, which has consequently lengthened the cash conversion cycle and at the same time increased the risk of further losses due to fraud or credit.

FGV's Yield Per Mature Ha lags far behind peers
FGV’s Yield Per Mature Ha lags far behind peers

The third related issue is the lack of productivity, as the FFB yield per mature hectare of FGV operated estates dropped to 14.9 MT/Ha in 2016. Whilst Management has blamed this on an unfavorable age profile and the effects of the El Nino, this performance compared poorly with the performance from Sime Darby’s Malaysian plantations, which recorded a yield of 20.3 MT/Ha in the preceding year. For its part, FGV’s 2017 performance is expected to be better as MPOB’s data has revealed a 20% increase in FFB production over the first four months of the year.

Management has attempted to address these challenges through several ways.  For its Upstream cluster, the replanting initiative which is expected to increase production by 30% to 5.2 mil MT of FFB by 2020. For its Downstream cluster, FGV’s management is aiming to produce high-margin consumer goods such as premium shortening in the FMCG sector. The TMLO sector, which has been restructured to the Logistics and Others sector, will focus on other supply chains such as the minerals supply chain in Perak through a tie-up with Lhoist S.A, a global leader in global leader in lime, dolime and minerals, and entering new markets through the construction of warehouses in Tanjung Langsat Johor to serve Oil and Gas clientele.  However, The Rembau Times is not totally convinced that an Agribusiness provider venture out to manage other supply chains when it cannot even efficiently manage its own supply chain and deliver profits. After all, FHB used to run the downstream and logistics segment profitably but FGV has been unable to replicate the performance.

Whilst The Rembau Times is supportive of the CEO, we reserve our comment on the Management Team in place. FGV has yet to show meaningful improvement in Operational Return metrics, which is explored in-depth in  following articles. But, in the short time since he has taken over, the new CEO Dato Zakaria Arshad has inspired more confidence than his predecessor.  The new CEO should forge ahead with his plans and ensure that the management team he has in place is capable of delivering the results.  And a new Chairman should be there to hold management to these results or replace them with a better group.

Behavioral Finance key to unlocking the Felda vote bank

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Politically, the most explosive situation that has yet to be capitalized by Pakatan Harapan relates to the debt burden borne by Felda settlers. Deputy Minister in the Prime Minister’s Department, Datuk Razali Ibrahim had recently revealed in a parliamentary reply that settlers owed the Government RM 5 billion in various kinds of loans as of Dec ‘15.

This RM 5 billion figure may seem to pale in comparison to the RM 44 billion debt figure associated with 1MDB, but it is the most relevant number for the upcoming election campaign.  This is because this figure works out to about RM 50,000 per settler household and is an issue that affects every single Felda settlement.

The Government has been extremely cautious in disclosing this and recognizes the potential political impact once settlers have received their debt statements.  While addressing the Jempol UMNO Division Conference in Mar ‘17, Datuk Razali revealed that the debts consist of operational debt and social debt.  Operational debt involved the cost borne by settlers for replanting activities carried out on their behalf by Felda Technoplant Sdn Bhd and social debts consist of housing and living allowance subsidies.  Whilst Datuk Razali did not provide a breakdown to Parliament, he did reveal in his speech to the Jempol UMNO division that the housing and social debts amounted to RM 1.2 billion, and thus leaving approximately RM 3.8 billion in operational debt.

The key issue however will be how the debt will be repaid.  The debt is borne by 112,635 settlers who collectively farm 475,000 Ha of oil palm plantations. This works out to the average estate farmed by the settler at approximately 4.2 Ha, which is predominately in Peninsula Malaysia. According to 2014/2015 FGV’s Sustainability Report, plantations managed by settlers produced 6 million tonnes of FFB, which works out to an average yield of 12.6 MT of FFB per hectare. This means the Felda settler harvests about 54 MT of FFB per year, which is then sold to FGV run mills. At MPOB’s average benchmark price of RM 605 per MT (it actually could range from RM 567 to RM 647 dependent on Oil Extraction Ratio), the average settler can be expected to earn approximately RM 32,000 per year gross.

Here is where the finance perspective comes in. The settler’s debt burden is now more than his annual income and annual payments towards the loan could amount to approximately RM 5,000 per settler per year. These deductions are made at source and the settler loses more than 13% of his income due to the debt burden. For settlers whose debt burden amounts to RM 100,000, which will be more reflective of the cost borne for a newly replanted estate, the debt burden can amount to 25% of his gross income. The situation is further exacerbated by disputes between settlers and mills concerning the Oil Extraction Ratio, declining productivity as settlers age and the El Nino effect, complaints about improper replanting, and the El Nino effect which could further affect productivity. What is worse, settlers use to benefit from the high dividend given by KPF, which has been reduced substantially after the acquisition of Felda Holdings Berhad by FGV.

With this background, the promise complete debt forgiveness for all debts owed by Felda settlers is a compelling.  This issue affects total votes of approximately 500,000 people, comprising of settlers and their families, but more importantly affects over 60 seats, which had previously been UMNO’s fixed deposit.

Another dimension concerns “Genarasi 2”, or the children of Felda settlers.  For a long time, their life revolved around the settlement and they are simply unable to enjoy the quality of life their parents enjoyed as the produce of the same land farmed by their father will now have to be divided up among the children. They are literally a lost generation as they are unable to continue farming due to smaller land base, competition by foreign workers and rural-urban migration.

The Opposition strategy over the last several election cycles of attacking the Government ad-nauseum has turned off voters to the point of nausea (hence the term ad-nauseum).  Felda voters view 1MDB as a personal issue between Dato Seri Najib and Tun Dr Mahathir and will vote UMNO unless there is a compelling reason to chose either wise. The solution to these issues requires populist policies, which was successfully used by Donald Trump and even Yingluck Shinawatra, when she successfully campaigned to become the Prime Minister of Thailand.  However, are Pakatan Harapan leaders able to put aside their emotional driven agendas and craft a more coherent strategy? The palm fruitlet is in their court.

Pakatan Harapan needs to campaign on Hope and Nostalgia

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The “What Malaysia Wants” survey put Bread and Butter issues as the most important issue for voters. Surprisingly Pakatan Harapan message has been extremely uncoordinated, trying to convince voters to reject Dato Seri Najib and/or the UMNO led Government without making a coordinated attempt to address this glaring issue.

Previously, Pakatan Rakyat, the predecessor of Pakatan Harapan, had put out an election manifesto termed “Buku Jingga” (Orange Book) in the run up to the 2013 General Election (GE -13) which attempted to address some of the economic issues faced by the public. Even though it was a good idea, Pakatan Rakyat still lost the election as BN held on to its rural heartlands, Sabah and Sarawak.

However, as the saying goes – “If you fail, try, try again.” After all, the U.S. Presidential elections revealed that the previously Blue Dog Democrats in the U.S. Midwest backed Donald Trump’s candidacy because he had promised bringing back jobs to the United States and voters believed that he had the right economic credentials.

The polling data and general perception is that the population has endured economic hardships brought about by the GST, inflation in goods and services, stagnant wages and a depreciating Ringgit. This has been most felt by the Malays, especially those who are on a Government pension or dependent on agriculture such as Felda settlers. Though the standing of Dr Mahathir has taken a knock because of his association with the DAP, voters aged 30 and above still remember the good times when he was Prime Minister.

Thus, Pakatan Harapan should capitalise on this issue with a theme centred on – “Kembalikan zaman kegemilangan Malaysia”, or “Return to Malaysia’s Greatness”. This message is strong on hope and with a Dr Mahathir – Dato Seri Anwar Ibrahim combination may still evoke memories of the good times enjoyed by voters in years past.

Additionally, Pakatan Harapan should begin to offer populist policies. ‘No brainers’ measures include complete debt forgiveness for Felda settlers for all debts owing to Felda and going forward, free replanting of palm oil plantations. Currently, Felda settlers owe approximately RM 5 billion in various debts to Felda.  For some individuals, the debt could be as high as RM 100,000 due to replanting expenses, which could work out to RM 20,000 per hectare. This debt is highly unsustainable and Pakatan Harapan should make the offer to completely wipe-out theses debts and offer free replanting of palm oil estates.

The second grouse has to do with the GST.  Pakatan Harapan should go and offer GST rebate, up to a certain amount, to all households with an income level below a certain threshold.  Through the use of the MyKad, GST collected at the point of sale could be transferred as electronic cash or credited into a bank account.

There are actually a whole host of populist policies that should be championed by Pakatan Harapan. Whilst many may no longer see Dr Mahathir as a strong defender of Malay rights, his economic credentials are still impeccable.  One story even described the time in the early 2000s, when Dr Mahathir was Finance Minister and chaired a pre-budget committee meeting from morning till evening.  Such was his tenacity.

Another populist policy will be to build a third link to Singapore to open up economic developments along the Eastern Johor – Southern Pahang corridor.  Donald Trump had the “Build the Wall” campaign, and any good campaign must have some ambitious project.  These cover the Parliamentary constituencies of Pasir Gudang, Pengerang, Kota Tinggi, Mersing and even Tenggara. Other populist policies could be reducing the price of Gas, offering discounts for student loans, the sky is the limit on this.

We live in the age of populism and Populist policies should be championed relentlessly in the run-up to the election. Pakatan Harapan needs discipline to stay focused on a consistent message and avoid all the issues deemed irrelevant to voters.

Selling the leadership change bet

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The question most people have on their minds but are afraid to ask is whether or not Home Minister, Dato Seri Zahid Hamidi, can succeed Prime Minister Najib Tun Razak? The follow up question is how soon can this take place?

The relationship between the Number One and Number Two in the country has seen many more acrimonious types of fallout than any smooth transition. In fact, one of the smoothest relationships between Number One and Number Two was when Mr Najib was Deputy Prime Minister, and his predecessor, Dato Seri Abdullah Ahmad Badawi, was Prime Minister. In front of him, Najib steadfastly supported Mr Badawi until the fateful UMNO Supreme Council meeting in late 2008 that saw him bringing forward his resignation after being attacked from multiple sides. (Rafidah Aziz was one of the vocal ones in demanding Pak Lah’s resignation).

Could Najib fall victim to such manoeuvre? Could the UMNO Supreme Council or the UMNO General Assembly suddenly rise in revolt against the Prime Minister?

In terms of chances, there is practically no chance for a Supreme Council style revolt. 2/3rd of the members would make in on the Prime Minister’s Best Friends Forever (BFF) shortlist. Though he may have ruffled the Prime Minister’s feathers by talking about the importance of integrity in leadership, there is also no chance for an open revolt from Dato Seri Ahmad Zahid Hamidi. The only chance would be an unprecedented uprising at the UMNO General Assembly, which is scheduled to convene in a week’s time.

This however is extremely unlikely, something like 100 to 1 odds, the same odds being quoted for Kayne West to become President of the United States in 2020. Whilst there are rumours of discontent with China’s increasing involvement in the country’s economic affairs, there isn’t anything remotely close to an organised rebellion. More ever, apart from Tun Dr Mahathir’s opposition, there has been no public show of mass Malay discontentment towards the Prime Minister. The sniping and backchat, while there, is relegated to the background.

In fact, the only way I see Mr Najib getting himself booted out of the UMNO Presidency is if he uses the platform to continue to attack Tun Dr Mahathir. Or if a brave/suicidal UMNO delegate, uses the podium to attack the Prime Minister, and then, only if the audience responds with a standing ovation.

Well the above three scenarios depend on a combination of one or more of the following three things. For the first scenario it depends on Mr Najib making the worst possible speech of his lifetime, which is highly unlikely. I doubt his speech writers are so stupid to continue to attack Tun Dr Mahathir after last year’s speech criticising Dr Mahathir through the 20 year ERL concession was not widely appreciated by the audience. On the second scenario, it requires an UMNO delegate to make the gamble of his life. And they don’t make men like that anymore, especially not in UMNO land. The third would require a feeling of palpable unease towards the leadership by the UMNO grassroots. After winning 2 out of the 2 recent by-elections, no such unease is apparent.

So by the process of elimination, Mr Najib’s fate looks quite well indeed. Savvy investors would sell the bet, capture the one percent premium and wait for the Ringgit to crash past RM 4.80 before seriously buying the story that a change in leadership is imminent.

Move over Bersih, Ringgit expected to take centre stage

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The Bersih 5.0 rally has come and gone and the only thing left are the expected arrests of Opposition figures and NGO personnel who helped organise the rally.

This threat was mentioned by Deputy Prime Minister, Dato Seri Ahmad Zahid Hamidi in a speech delivered at his constituency in Bagan Datoh, Perak. When commenting on the rally, the Prime Minister Najib , who is in Peru on an official state visit, said that Malaysians were fed up with the Bersih rally.

Judging by the low turnout, his comments are not without merit. The Rembau Times has consistently said that there are no shortcuts towards fixing the country’s political mess, it will take years and should start with the DAP addressing the deep distrust Malays have towards the party.

However, with memories of the Bersih rally fading fast, the Prime Minister may be beset with a new problem, that of the Ringgit’s exchange rate.  Month to date, the Ringgit has declined from RM 4.19 to RM 4.42 to the US Dollar, a decrease of 5.0%.

To Bank Negara, the issue seems to be that of  the presence of the Non-Deliverable Forward (NDF) market in Singapore.

Firstly, it is important to understand how the NDF exchange rate differs from the local USD:RM exchange rate. The NDF exchange rate is entirely settled in US Dollars, whereas the spot USD:RM exchange rate is settled in either Ringgit or USD, depending on the transaction. For example, if an investor buys the Ringgit against the USD in the Malaysian onshore market, the transaction will settle by selling Ringgit against the USD. If the Ringgit strengthens, then the investor will gain an net profit in Ringgit. If the Ringgit weakens, then the investor will sustain a net loss in Ringgit. Similarly, if the investor sells the Ringgit against the US Dollar, the investor will either sustain a net gain or less in US Dollar.

In the NDF market, the settlement is always in US Dollar. An example of the contract specification can be found over here.  As per the contract specification,  the settlement price for the contract is derived from Bank Negara’s Official Malaysian ringgit per U.S. dollar” spot exchange rate spot rate at 3:30 p.m. Kuala Lumpur time 2 days before contract expiry.

The issue is that Bank Negara feels that the rates set in the NDF market is not anchored on the fundamentals of the economy but on speculative behaviour and this will put downward pressure on the exchange rates quoted onshore by local banks.

This concern deserves some explanation. Firstly, we have to understand that the NDF rate cannot be directly compared against the spot rate as the NDF rate refers to the forward exchange rate, and not the spot rate. Due to the perceived real interest rate differentials between the US and Malaysia, the forward rate will always trade at a discount compared to the spot rate i.e. a weaker forward rate for RM.

One important point to note that a forward rate settled in either Ringgit or USD will be linked to the spot rate through a formula derived from interest rate parity arguments.  Suppose the NDF rate is lower than the “theoretical” forward rate, then investors/banks will buy the Ringgit offshore at the NDF rate and sell the Ringgit onshore at a higher rate. For example, RHB’s 1 month USD:RM forward is currently quote at a midpoint of 45 points (or effectively at RM 4.3750 (spot rate) +45/10,000 =4.3795. If the NDF rate is quoted at lets say RM 4.500, then an investor can lock in a profit of 1,205 pips  by buying Ringgit in the offshore market for RM 4.5000 and selling 1 month forward in the onshore market for RM 4.3795. If each pip was worth, lets say RM 100, then this is a profit of RM 120,500.

We can actually see Bank Negara’s concern over here through an example.  On settlement date, suppose Bank Negara’s bid – ask is RM 4.500 / RM 4.625, a wide spread indeed. The average rate will be RM 4.5625. The investor sustains a loss of 625 pips in RM in the offshore market, which will be converted to a loss of 137 pips in USD. In the onshore market, he went short the Ringgit USD at 4.3795 and closed his position by buying Ringgit at RM 4.500. On paper, he emerges with a healthy 1,205 pip profit in RM, but his actual gain is only 278 pips in USD, still a healthy profit of 141 pips (278 pips – 137 pips).

This gain happens because the local banks are giving a better forward rate price than the NDF market. The situation is same in places like China where there are different quotes between offshore rates in Hong Kong and onshore rates in Beijing. The Chinese government however stops this by slapping strict capital controls and drastically changing the Offshore borrowing interest rates to “kill” speculators, where overnight HIBOR rates can reach 30 – 50%.  In the case of the NDF, Bank Negara does not have this flexibility as the contract is USD settled, so gains and losses are priced in USD, which are affected in US Dollar interest rates such as the Fed Fund Rates and LIBOR, as opposed to Bank Negara’s Overnight Policy Rate.

Bank Negara has used an interesting option to counter the situation. Bank Negara has insisted foreign banks to cease from engaging in the NDF market as a precondition for approving Ringgit – USD trades, by having the respective Compliance officers sign off on a declaration. This is interesting because should the Compliance officer lie on the sheet, he or she may be open to criminal prosecution if they step into Malaysia.  But alternatively, this may enrage investors who see this as a evidence of heightened risk. So far, this latest move has not been seen positively as the Ringgit has traded lower from RM 4.227 last week to RM 4.412 as of last Friday.

Short of capital controls, one traditional tool to fight speculators is to hike up the overnight interest rate, to lets say 10 pct. This will weaken the economy but may actually weaken both the NDF and Onshore rate  due to the effect this move will have on Government Bond prices. The bond market will collapse as investors, both foreign and domestic, will sell off Government Bonds, creating more panic driven demand to change Ringgit to USD. This will have the reverse effect of actually causing a further depreciation of the Ringgit, both onshore and offshore. Interestingly,  Bank Negara is in a lose-lose situation when it comes to interest rates because if it lowers the interest rate, it may boost domestic bond prices but may also encourage investors to sell it off and lock in profits.

The next policy tool is direct intervention, by buying Ringgit in favour of USD.  The Rembau Times views this as a risky move as the country’s current account balance is at historically weak levels and traders may take it as a sign of impending capitulation. Currently, Bank Negara is engaging in this transaction, perhaps with the hope that OPEC will agree to a historic cut in their next meeting planned 30th Nov and drive up oil prices, and with that improve Ringgit sentiment.

The risk with this is that should OPEC fail to come to any meaningful arrangement, or if the outlook of the Oil Market weakens, then this strategy will fail on two accounts.  Firstly, Bank Negara would have lost its reserves and secondly the future outlook for the Ringgit would have weakened.  The Rembau Times strongly urges Bank Negara to stop this at this current moment and instead wait for the oil market reaction on the 30th Nov. If the reaction is favourable, that will be the best time to “destroy” the speculators. If the reaction is unfavourable, then at least Bank Negara has preserved its reserves and can advise the PM on adopting austerity measures to reduce the exchange flows out of the country. It may also need to bite the bullet and suggest capital controls, as there is a sizable amount of foreign money invested in the domestic bond market.

The best strategy is for Bank Negara to bite the bullet and actually advise the Prime Minister and the Cabinet on the concerns investors have on the Ringgit. The concerns are a mix of economic and governance issues, and both seem to be related. On one hand, we are entering a period of volatility in ASEAN and the region due to the perceived protectionist regime favoured by the incoming US President as well as expectations of rate increases in the US. However, Malaysia is entering this period with a weak balance sheet due to the large amount of Government debt, increased infrastructure spending which will further increase Government debt and cause further outflows due to the high import content, low current account balance and large leakage through the Balance of Payments, called “Net Errors and Omissions”.  However, unfortunately it seems that the Cabinet appears disinterested in tackling these issues, and all it seems left to do is for the country to hope for the best that this economic storm will pass away.

 

 

(Note: “Net Errors and Omissions” are cross border flows of Ringgit which cannot be accounted.  In 2016, there was a leakage of RM 26 billion, although in fairness, there was an inward flow of RM 14.9 billion in 3Q16, compared with unaccountable outward flows of RM 41 billion for 1H16. )