By Stephanie Jacob
The recent spate of acquisitions being made by Felda and its 39% owned subsidiary Felda Venture Global Holdings (FGVH) has raised eyebrows both in terms of the choice of assets and in terms of valuation and price being paid.
The latest venture to have been announced by Felda is the acquisition of the Grand Plaza Service Apartments for GBP98 million (almost RM497 million) in London, United Kingdom. It was the second property purchase for Felda in September, after it announced that it had bought the four star Grand Borneo Hotel, located in Kota Kinabalu in Sabah for around RM86 million.
This foray into the world of tourism comes after the Felda announced the surprise acquisition of Bursa listed Iris Corp for RM110 million, just last month.
Felda has indicated that its newly formed investment arm Felda Investment Corporation will take charge of its shareholdings, as well as manage its eight hotel properties spread out across Perak, Terengganu, Negeri Sembilan, Sabah, and now in London.
Isa Samad
Chairman Isa Samad has on more than one occasion suggested that it will be important for Felda to diversify its plantation portfolio, which is now heavily tied to the ups and downs in the international crude palm oil market.
He has said that he believes that plantation companies which have a more varied portfolio of assets were better equipped to withstand the volatility. Nonetheless it is unclear why Felda has chosen the tourism industry, which is seen as susceptible to both local and international headwinds.
But Felda are not the only ones who are busy, FGV has also started spending some of the RM6.2 billion cash supplies it raised through its listing on Bursa’s main market in the middle of 2012.
In July 2013, FGV made its first major acquisition after its listing in the form of upstream plantation assets in Kalimantan, Indonesia. The company acquired a 95% stake in both PT Temila Agro Abadi for RM25.7 million and in PT Landak Bhakti Palma for RM18.3 million. Most recently the company acquired Pontian Plantations Bhd (PPB) for close to RM2 billion, with FGV offering RM140 per share, a valuation which analysts have deemed expensive.
According to Alliance Research Arnhue Tan, the research house is maintaining its neutral stance on the acquisition as we find initial valuations to be expensive… 30.6x price-earning (PE) ratio is above sector peak cycle valuations of 20-25x.” Furthermore, she adds that it is also above FGV’s current valuations of 23.7x on financial year 2014 earning per share (EPS).
The report said that it was hard to judge if the premium paid by FGV was justified, as details of Pontian’s assets and statistics are undisclosed, and concluded that at least in the short term FGV prospects are unexciting, and as such maintained its ‘sell’ call on FGV.
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