FGV all set to shine

Felda Global Ventures Holdings Bhd's RM10.5 billion IPO is set to shine on the stock market in the immediate term. But long term interests in its shares will depend on how well FGV's growth plans are executed, OOI TEE CHING writes.



IN every crisis, there are always opportunities, so said a stock market punter. When contacted over the weekend, he said in the face of a seemingly never-ending downward spiralling eurozone, China's economic slowdown and heightened market volatility, the Felda Global Ventures Holdings Bhd (FGV) share sale could be a good money-making opportunity.

Declining to be named, the veteran investor said, "I don't think FGV's IPO is going to be dragged by near-term market sentiment because there's strong support from government funds and cornerstone investors."

According to FGV's prospectus, about 20 per cent of the deal has been set aside for Bumiputera institutions. On top of that, FGV has secured 12 cornerstone investors that will take up 19 per cent. This means a guaranteed allocation in return for a six-month lock-up.

Trading firm Louis Dreyfus Commodities Asia Pte Ltd, too, has agreed to buy a 2.5 per cent strategic stake. The French giant has entered into an offtake agreement to buy up one-third of FGV annual palm oil supply, a move that is mutually beneficial.

State governments, where the FGV's oil palm and rubber estates are located, will also purchase up to 12 per cent.

"There's only eight per cent of FGV that has been set aside for retail investors, including employees and Felda settlers. So, there's actually not very much stock left to be subscribed," the stock market punter said.

Last week, at the launch of FGV prospectus, Prime Minister Datuk Seri Najib Razak, who is also Finance Minister, hinted that there might not be enough FGV shares to go around as many big investors have block-booked their interests.

CIMB, Maybank and Morgan Stanley are joint global coordinators and Deutsche Bank and J.P. Morgan are joining them as bookrunners.

When asked to comment, the stock market punter said, "Najib most probably got wind that bookrunners for the FGV IPO are seeing more demand than they could possibly fill and had to scale back allocations."

"So, you see, when the Prime Minister hints that the FGV IPO will be well-received," he chuckled, "he knows what he's talking about".

Aberdeen Islamic Asset Management chief executive officer Abdul Jalil Abdul Rasheed, on the other hand, prefers to take a long term view. "We've not decided whether to bid for FGV's shares," he said. "We prefer to look at the fundamentals over a longer period of three years. That will reflect how the company is run."

Another Kuala Lumpur-based fund manager sees potential growth in FGV, citing aggressive replanting of unproductive trees with high yielding hybrids at 15,000ha per year. "FGV has a growth story to tell and its peers appear to be trading at similar or cheaper valuations," he said.

Subscription for FGV's shares opens to the public from 10am, May 31 and closes at 5pm on June 12.

FGV operates 343,521ha of oil palm estates in Malaysia that produce 5.2 million tonnes of fresh fruit bunches. Last year, high rubber prices prompted its 10,308ha rubber estates to yield 7,269 tonnes of cup lumps for sale to industrial users.

Its 49 per cent-owned associate Felda Holdings Bhd is a force to be reckoned with, having milled 3.3 million tonnes of crude palm oil last year. This gives it a seven per cent global market share.

FGV intends to strengthen its grip in the palm oil market by using the estimated RM4.5 billion IPO proceeds for upstream expansion and downstream development.

About RM2.2 billion will go to the purchase of suitable agriculture assets in Indonesia, Cambodia and Myanmar. Another RM840 million is set aside for selective acquisitions of oil and fats, manufacturing and logistics businesses.

Apart from being the largest crude palm oil producer in the world, FGV is also Malaysia's Sugar King. In January 2010, FGV bought over Robert Kuok's entire sugar business in Malaysia and a 20 per cent stake in Tradewinds (M) Bhd for RM1.8 billion.

Now, through its sugar unit MSM Holdings Bhd, FGV is able to produce 1.1 million tonnes of refined sugar a year. Its clients include F&N Beverages Manufacturing Sdn Bhd, Permanis Sdn Bhd and Nestle Manufacturing (M) Sdn Bhd.

Unknown to many, FGV has been profitable all this while. Its prospectus revealed that last year, FGV posted RM1 billion net profits from continuing operations, compared with RM929 million in 2010 and RM433 million in 2009.

In its filing to the stock exchange, FGV said its first quarter profit ended March 2012 amounted to RM223.2 million, 36.3 per cent less than RM350.2 million, a year ago.

FGV's management explained a tolling agreement with trading partner Bunge Ltd meant that the sale of soya and canola products are no longer reflected as revenues. Also, new incentive payments to plantation workers have raised production costs. These, collectively, dented its first quarter earnings.

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