Wednesday, 12 September 2012

EPF buys more FGVH equity as shares drift

September 12, 2012
Datuk Seri Najib Razak (centre) holds up a copy of the FGVH prospectus during its launch.
KUALA LUMPUR, Sept 12 ― The Employees Provident Fund (EPF) snapped up another 2.2 million shares of FELDA Global Ventures Holdings (FGVH) as the plantation giant’s stock almost went underwater yesterday before recovering slightly to end five sen higher.
 Shares of FGVH yesterday barely missed going under its initial public offering’s institutional selling price of RM4.55 yesterday, plunging eleven sen from its opening price to a low of RM4.57 before rebounding to RM4.73 at the end of the trading day.

EPF is one of the cornerstone investors of FGVH and has been raising its direct stakes in the GLC from 5.07 per cent on July 4 to 7.02 per cent yesterday.

The accumulation of FGVH shares despite its general downward trajectory over the past two months is giving some market observers the impression that the country’s largest pension fund could be trying to prop up shares of the plantation group.

The price of FGVH could also be worrying some FELDA settlers who were given the option of buying shares at the IPO retail price of RM4.45.

It was reported on August 29, however, that the government secured a RM360.7-million allocation from FELDA to fully finance 800 units of shares bought by each of the settlers.

The allocation would free settlers from having to pay banks the five per cent interest a year on the loans they took to buy the shares; the settlers would instead repay FELDA about RM50 monthly interest-free, for five years.

The share price of FGVH has underperformed relative to its peers such as Sime Darby and KL Kepong.

While shares of plantation stocks have come under some pressure due to concern over lower palm oil prices, KL Kepong is down about four per cent from early July and Sime Daby is down only about one per cent, compared to FGVH that has fallen about 12 per cent.

FGVH 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.

The group 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 productivity in terms of tonnes per hectare that ranks as the third-lowest among the major Malaysian plantations firms.
Palm oil prices are also expected to remain weak in the near term as Malaysia’s stockpiles remain elevated and the country also faces competition for exports from Indonesia.

Some analysts note, however, that FGVH offers a steady cash flow and a 50 per cent dividend payout policy.

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