Felda Plants Seeds of Investor Discontent
By CYNTHIA KOONS And DUNCAN MAVIN (WSJ)
There has been no place to hide lately for investors in initial public offerings.
Facebook’s turbulent $16 billion IPO has left its stock well below the $38 offer price. Now, the year’s second biggest offering—from the other side of the world in fast-growing Southeast Asia—also may throw investors for a loop.
Malaysia’s state-run palm-tree plantation company, Felda Global Ventures Holdings Bhd., just raised $3.1 billion. The sale saw strong demand from institutional buyers. Yet, two days before the stock was due to debut on the Malaysian stock exchange, Felda sprang a nasty surprise: a roughly 50% drop in first-quarter net profit due in part to higher costs for planting trees.
The profit slip is in contrast to the IPO prospectus, which promoted the group’s expertise as the world’s third-largest palm-oil plantation operator. The offering’s underwriters also talked up demand, citing a 4.2% rise this year in global consumption of edible oil and fats, one of palm oil’s main uses. But that hasn’t meant much for Felda so far. First-quarter revenue barely budged, rising just 1.8% from last year.
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There can be few excuses for such poor foresight. A plantation company should know the cost of planting new trees. Felda also said it had to pay a higher-than-expected price for crude palm oil. Again, the company should have anticipated this sooner.
Agence France-Presse/Getty Images
A farmer plugs palm oil fruits from a tree at a Malaysian plantation.
There is another reason to question Felda’s growth story. The group’s trees are older than competitors’ on average, which makes them lower yielding. That explains why Felda is planting new ones.
Nasty surprises like this won’t do much to help rekindle investor enthusiasm for IPOs. Nor are investors likely to stick long with Felda if its prospects can wither so quickly.
