Macquarie Securities started coverage of palm oil company Felda Global Ventures Holdings with an “underperform” rating and a target price of RM3.85 based on the firm’s unfavourable tree age and rising downstream competition.
Macquarie said in a note to clients that while local funds supported the stock’s debut on Thursday, research showed there could be a 27 percent downside to the share price.
Felda surged 20 percent in its trading debut as investors cheered on he world’s second largest IPO this year with share prices going as high as RM5.46.
Macquarie said Felda Global’s current fresh fruit bunch (FBB) yield is 15 percent lower than listed competitors with more than half of its estates at over 20 years old.
Increased competition from Indonesia and a reversal of abnormally high margins in 2011 may also weigh on profitability.
Shares in Felda Global fell 0.4 percent to RM5.28 on Friday, underperforming the broader market that inched higher. — Reuters
Lest you’ve also missed this analysis from Profundo (malaysiafinance.blogspot) , i am taking liberty to post it here for your perusal – as a kinda afterthought and in response to Macquarie’s calling a ‘SELL’ on FGVB!
Stock exchange Bursa Malaysia
Listing date 28 June 2012
Shares for sale 2,189 million
Proposed price RM 4.55 (€ 1.14)
Issuing syndicate CIMB, Maybank, Deutsche Bank, JP Morgan, Morgan Stanley
Land bank 424,995 ha
FFB production 5.2 million MT/yr
CPO sales 3.0 million MT/yr
Annual sales € 1.8 billion
Land bank 522,000 ha
Compensation for land – Insufficient
Payment for fruit – Below market
Deforestation – Indonesia, Africa
Ruling party in Malaysia – UMNO
FGVH management control – UMNO
IPO proceeds for FELDA € 1.38 billion
Opposition parties – Against IPO
Press freedom (RwB) – Partly free
Elections – Coming months
Average age of oil palms 20+ years
Profitability – Poor
Governance – Poor
Financial dependency on land lease agreement – High
Continued access to land bank – Uncertain
Investors face huge risks…
Investors buying FGVH shares will face significant environmental, social and governance risks, which are likely to create financial risks:
Tensions between the company’s ambitions and the Malaysian rural poor are rising because of alleged systemic undervaluation of oil palm fruits and the use of power politics to grab land;
The company does not have a strong sustainability record, with only 3% of its landbank RSPO certified. 50% of IPO proceeds will be used to develop plantations in vulnerable areas in Africa, Indonesia and elsewhere;
Malaysia’s ruling political party, UMNO, controls company management and lines up state-controlled investors to inflate share demand. Opposition parties favour redistributing FGVH’s landbank under the
rural poor. With elections upcoming, changes in the political landscape may affect FGVH’s access to land and income streams;
Yields are below average and half of the plantations need to be replanted. Investments needed are much higher than projected.