From what I interpret, for the next week years, Felda profit will be under pressure and Felda PE ratio may continue to stay high and therefore, not good for Felda share price. Those who hold long term may be rewarded just by the Felda Dividend Yield.
But for Felda IPO, I think still can make money.
The articles are old, but some points still applicable.
Kuala Lumpur: Felda Global Ventures Holdings Bhd’s (FGVHB) upcoming IPO, FGVHB IPO touted as Asia’s biggest this year, may not get the robust response many expect, analysts said.
For one, a large part of FGVHB’s plantations is old and needs to be replanted, leading to high costs.
According to its draft prospectus, FGVHB had 323,587ha of oil palm estates in Malaysia, of which 53% consist of oil palm trees that are more than 21 years old. Oil palm trees have an average life of 25 years, plantation industry experts note.
“The replanting will keep FGVHB’s profitability under pressure as replanting costs are charged to profit and loss under Malaysia’s accounting practice. From our understanding, the cost of replanting is similar to the cost of greenfield development, which is around RM15,000 per hectare up to maturity, spread over three years,” OSK Investment Bank said in a report last Tuesday
“This means FGVHB will need to spend about RM2.6 billion on replanting over the next five years,” the report said.
Lacking a robust growth story, analysts believe that FGVHB’s IPO may not attract the strong response Bumitama Agri Ltd did in Singapore last month.
Felda Global has 323,587ha of oil palm estates in Malaysia with 53% of oil palm trees more than 21 years old.
Bumitama’s IPO was oversubscribed by more than 30 times. On its first day of trading, Bumitama shares closed at a 27.5% premium to its IPO offer price.
To compare the growth potential, 71.9% of Bumitama’s total planted area of 119,162ha is made up of immature and young plants. The rest are at the prime age of 7 to 18 years. The company also owns 72,786ha of plantation land waiting to be planted.
In contrast, 30.7% of FGVHB’s planted area is made up of immature and young trees. Trees from the age of 10 to 20 years account for 16.4% and roughly 52.9% of the planted area was of old trees.
However, observers noted that FGVHB is still one of the leading global plantations players with advantages in economies of scale.
In terms of mature oil palm planted, Frost & Sullivan said FGVHB was the world’s third largest player in 2011 with 288,442ha of mature planted area after Sime Darby Bhd (468,668ha), Golden Agri-Resources Ltd (390,759ha), PT Astra Agro Lestari Tbk (217,343ha), and Wilmar International Ltd (216,623ha).
In terms of CPO production, FGVHB produced about 3.3 million tonnes making it the world’s leading producer, followed by Sime Darby (2.4 million tonnes), Golden Agri-Resources (2.2 million tonnes) Wilmar (1.8 million tonnes) and PT Astra Agro (1.3 million tonnes).
FGVHB also owns a 51% stake in MSM Holdings Bhd, the leading refined sugar producer in Malaysia, which contributed 29.4% to its revenue in 2011.
In 2011, FGVHB posted a net profit (after minority interest) of RM942.18 million on the back of RM7.47 billion in revenue. Based on its post-listing share base of 3.65 billion, this translates into an earnings per share (EPS) of about 26 sen.
FGVHB has not announced its IPO price yet, but observers believe that it will be priced based on a historical price-earnings ratio (PER) of its peers in the region.
According to analysts who track the plantation sector, the top plantation players listed in Malaysia, Singapore, and Indonesia had an average PER of around 15 times over the last few years.
On this assumption, the analyst said FGVHB offer price will be around RM3.90. FGVHB will offer up to 2.19 billion shares under its IPO, which is scheduled in June.
Source: The Edge Daily early May 2012.
This article not so bad on Felda stock.
SOON-to-be listed Felda Global Ventures Holdings Bhd (FGVH) is going all out to boost productivity after its listing as part of efforts to ensure steady future growth in earnings.
Wholly-owned by the government's Felda Land Development Authority (Felda), FGVH is slated to be listed on Bursa Malaysia by the end of June. The listing is expected to garner a market capitalisation of RM18 billion and raise proceeds of over RM12 billion.
According to sources, although half of FGVH's 355,846ha oil palm estates are past their prime at over 25 years old, another 17 per cent of the estates are at their prime production between 20 and 25 years old.
"Together, they would help the company achieve its key performance index of harvesting 23 tonnes of fresh fruit bunches per ha per year in the next five years, from about 19.3 tonnes currently.
A source said Felda will continue to boost productivity by using its award-winning Yangambi oil palm seeds, which can boost oil extraction rate to 23 per cent from the current 20 per cent.
It is understood that post-listing, FGVH plans to return 50 per cent of its net profit to shareholders and achieves a return on equity of 13 per cent.
Meanwhile, in a report, OSK Research said despite the headwinds, FGVH's initial public offering (IPO), if priced correctly, may have a fair take-up rate.
"Given the high price multiple of the large listed plantation companies in Malaysia in the range of 16 to 18 times, we believe it will not be difficult to command 12 to 13 times price-earnings, which is a premium to the large listed Indonesian player," OSK said, giving the stock a neutral recommendation.
It added that FGVH is headed by Datuk Sabri Ahmad, who was formerly group chief executive of Golden Hope Plantations Bhd and a highly respected figure in the palm oil industry. Thus, it has a fair chance in wooing investors.
OSK said 52.8 per cent of FGVH's planted oil palm areas will need to be replanted in the immediate future up to the next five years. At RM15,000 per ha, FGVH needs to spend RM2.6 billion on replanting over the next five years.
Other than oil palm plantations, FGVH also has 9,472ha rubber plantations, all of which are located in Peninsular Malaysia.
Under its downstream business, FGVH owns a soyabean and canola crushing and refining facility in Canada and an oleochemical plant in the US.
The group owns five palm oil refineries in Malaysia with a production of 1.6 million tonnes of refined palm oil products, although these assets are at associate levels.
The group also owns sugar business in Malaysia under listed MSM Holdings, in which it owns a 51 per cent stake.
All in all, FGVH will be the second biggest listed plantation company in Malaysia by planted hectarage after Sime Darby Bhd, and the third biggest in the world after Sime Darby and Singapore listed Golden Agri-Resources Ltd.
FGVH filed its draft prospectus with the Securities Commission late last week.
Although no price has been mentioned, there will be 2.19 billion new shares to be issued out of the total of 3.65 billion shares to be listed
Source: Business Times early May 2012.
For more information on IPO here.
For more information on Felda IPO here.
More information on Malaysia Gas IPO here.