FGV Listing & A Sobering Overview By Profundo

I may not agree with the way this issue got itself listed, still from a trading perspective, there is a decent opportunity in the first few days. My assessment from the overall demand patterns, it has a very good chance of hitting RM5.40, a good chance of RM5.60, and if the market is crazy even RM6.00. That is not the real market price for FGV, the real price will be after the lockup period is over.



IPO
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


Company
Land bank 424,995 ha
FFB production 5.2 million MT/yr
CPO sales 3.0 million MT/yr
Annual sales € 1.8 billion


Social risks
Settlers 112,635
Land bank 522,000 ha
Compensation for land - Insufficient
Payment for fruit - Below market


Environmental risks
Deforestation - Indonesia, Africa


Political risks
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


Financial risks
Average age of oil palms 20+ years
Profitability - Poor
Governance - Poor
Financial dependency on land lease agreement - High
Continued access to land bank - Uncertain


By Profundo:
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.


p/s click on image for larger view