Expectations rise on Felda listing

KUALA LUMPUR: With the listing of Felda Global Ventures Holdings Sdn Bhd (FGV) by mid-2012, Bursa Malaysia is set to house the world’s two largest listed plantation companies. The one-up for the local bourse seems the start of a greater challenge for FGV, though.

While set to unseat Sime Darby Bhd as the world’s largest listed planter in terms of planted estates, FGV, with over 850,000ha of estates (including smallholders’ acreage under management), has a fair way to go in terms of beating its other large listed peers in the region. To borrow Prime Minister Datuk Seri Najib Razak’s words, FGV’s listing is to raise funds to make it a global conglomerate — already making a distinction between what is merely big in size and a true leader.

FGV has some catching up to do in terms of earnings alone. With some 631,000ha of planted oil palm acreage in Malaysia and Indonesia, Sime Darby’s plantation earnings were RM2.11 billion over RM10.86 billion in revenue for the FY10 ended June 30. By comparison, FGV and Felda Holdings Bhd reported pre-tax profits of RM366 million and RM760 million for FY10 ended Dec 31. For 1H11, FGV booked a pre-tax profit of RM167.8 million on the back of RM1.98 billion turnover, while Felda Holdings made RM314 million pre-tax profit over RM8.9 billion turnover for the six- month period.

But going by how FGV describes itself, it would seem that the group is looking to turn itself into an agribusiness giant like Singapore-listed Wilmar International Ltd rather than the more diverse conglomerate Sime Darby is.

FGV, which is expanding abroad, is spearheading the Felda Group’s business transformation into an integrated agribusiness giant. Already FGV has refineries here and in China, Turkey, Pakistan, Indonesia, South Africa and Canada with a combined processing capacity of 14,100 tonnes of crude palm oil (CPO) per day, according to data on its website.

Already Malaysia’s largest palm oil refiner and producer of crude palm kernel oil, FGV is now looking to extend its global reach through investments and acquisitions as well as forming strategic collaborations in the upstream and downstream value chain.
Felda settlers enjoy a break on Workers Day this year. They are likely to be the biggest beneficiaries of the initial public offering with cash in their pockets.

Its cooking oil, Saji, is a market share leader in Malaysia, while some 30 other brands of speciality fat products are being produced and distributed worldwide. This is managed by Felda-Iffco Sdn Bhd, a joint-venture with Dubai-based IFFCO International.

The JV recently announced plans to penetrate the Europe market through Turkey where its refinery reportedly has a 3.2% share of the palm oil market there and plans to raise that to 8.4% next year.

And FGV isn’t just about oil palm, it is also involved in rubber and cocoa production. It has businesses in other parts of the supply chain like fertiliser production as well as other services like transport, bulking and engineering, according to its website. Then there’s the sugar refining business under MSM Malaysia Holdings Bhd, which in June became the first Felda unit to list on Bursa.

Even so, with competition for agricultural land as well as dominance in the consumer and agribusiness space hotting up everywhere, FGV has an uphill task ahead in its attempt to carve out new markets. Traders like Singapore-listed Olam International Ltd, for one, have been bulking up on upstream assets in recent years and have long-established relationships in populous Africa.
FGV's Saji is a market share leader in Malaysia.


Other large planters like Indonesia-based Golden Agri-Resources Ltd, with 446,200ha of oil palm estates (including smallholders), last year expanded its oil palm refinery business in China and is now eyeing expansion in India. Both Golden Agri and Sime Darby have each secured some 200,000ha of landbank in Liberia for cultivation.

Notably, Wilmar — which is also building partnerships to expand in Africa alongside its expansion of the sugar business in Australia and Indonesia — was able to carve out top three positions in the branded cooking oil businesses in China, India, Indonesia, Vietnam and Bangladesh with only about 250,000ha of planted estates of its own producing 3.35 million tonnes of fresh fruit bunches (FFB) in FY2010. That compared to FGV’s production of 7.17 million tonnes of FFB in 2010, alongside 2.99 million tonnes of CPO and 760,000 tonnes of crude palm kernel oil.

Wilmar’s mills processed over 20 million tonnes of palm products last year, more than the 14.5 million tonnes of FFB that FGV processed at its 70 mills in Malaysia. FGV’s oil extraction rate of 20.68% and kernel extraction rate reportedly at 5.33% in 2010 were comparable to Wilmar’s FY10 extraction rates of 20.7% and 4.8%.

That said, it remains to be seen just how much more foreign interest FGV’s listing would help draw to the local market. Singapore-listed commodity trader Noble Group Ltd, for instance, last week drew interest after news got out that it is mulling a spinoff of its agriculture businesses on the Singapore Exchange — a unit which analysts reckon could be worth US$5 billion (RM15.75 billion). Noble, which deals in energy, metals as well as food-related commodities, was also reportedly considering a separate listing to raise funds for further expansion.

For MSM and local plantation counters, news of FGV’s impending listing may not be all good, analysts say, as institutional fund managers would more likely than not rebalance their portfolios to accommodate the new Felda unit.

For now, expectations are that FGV’s listing will largely be one that puts more money into the pockets of Felda settlers, which could determine the fate of 54 parliamentary seats and 92 state seats in the upcoming general election.

“The rights and interests of Felda settlers will continue to be protected by Koperasi Permodalan Felda as the majority shareholder. Felda settlers are expected to receive a windfall, with the amount to be announced before listing,” Najib said when tabling Budget 2012 last Friday.

For the local bourse, back-of-the-envelope calculations show FGV should be among the country’s top 50 companies with a market capitalisation of at least RM5 billion, using a simple 14 times multiple of its FY2010 earnings — conservative relative to the 14 to 16 times earnings analysts value planters at currently — and assuming it lists as it is now. Much, however, will depend on how well the company is marketed as well as the age profile of its vast estates.