Tuesday 11 September 2012

EPF buying FGVH as shares hit new low

September 11, 2012

KUALA LUMPUR, Sept 11 — The Employers Provident Fund (EPF) has been accumulating shares of Felda Global Ventures Holdings (FGVH) even as shares of the plantation giant sank to a new low yesterday, closing at RM4.68 a share or just 13 sen above its issuing price.

According to filings with Bursa Malaysia, the country's largest pension fund's stake in FGVH have increased 5.4 per cent since September 3, the day before FGVH plunged below the RM5 mark.

The pension fund also recently spent RM2.4 billion to take over the Rubber Research Institute (RRI) land in Sungai Buloh that will be turned into a township. It is mandatory for private sector workers to contribute to the fund, which is managed by representatives from the government and unions.

EPF now holds a 6.98 per cent stake in the group, up from 6.62 per cent on September 3 and sharply higher than the 5.01 per cent stake it held on July 12.

The plantation group reported disappointing profits for the second quarter, which was down 32.5 per cent from a year earlier due to lower palm oil harvests, increases in operating costs, and lower contribution from its sugar subsidiary MSM Holdings.

FGVH was the second largest initial public offer (IPO) in the world this year and its shares rose 20 per cent in the first day of trading to RM5.46 but have been in a general downward trajectory since.

The Malaysian palm oil industry has also been under pressure from low prices, which have declined more than eight per cent this year.

Stock piles for the commodity hit 2.13 million tonnes, a 10-month record yesterday sending prices lower for the fifth day in a row.

FGVH could also struggle with its ageing oil palm trees that account for 53 per cent of the 320,000 hectares of oil palm estates which rank among the highest in the industry and a replanting exercise would mean even more loss of income for the group during the period it takes for trees to mature.

FGVH also reportedly suffers from a productivity in terms of tonnes per hectare that ranks as the third lowest among the major Malaysian plantations firms.

HwangDBS Vickers Research has a "HOLD" call on FGVH saying that it offers limited upside to its target price of RM5.05 but the counter also offers a steady cash flow and a 50 per cent dividend payout policy.

Malaysia is the world's second largest palm oil producer, after Indonesia which for years supplied the manpower needs for Malaysian plantations. But the flow of Indonesian workers have stopped in recent years, prompting Malaysia to revisit plans to lift a ban on Bangladeshi workers.

Planters say Malaysia needs an additional 40,000 foreign workers if it was to meet this year's target of 19.3 million tonnes output.

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