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EPF defends snapping up FGVH shares

 | September 12, 2012

It says it was taking the current opportunity of weak prices of CPO and high stockpile to position itself for the future.

KUALA LUMPUR: The Employee’s Provident Fund today defended its move to snap up Felda Global Ventures Holdings (FGVH) shares following concerns that the pension fund was using taxpayers money to prop up the diving stock prices.

It said in a statement today that current market weakness and cyclical nature of plantation stocks are the reasons behind the decision to raise its stake from 5.07% on July 4 to 7.02% yesterday.

The EPF is one of the cornerstone investors of FGVH and said that as a retirement fund and long-term investor, it has an extended and positive view on the plantation sector, which is one of the cyclical sectors which naturally fluctuates.

“Our current buyings are mostly forward looking and we are taking the current opportunity of weak prices of CPO and high stockpile to position ourselves for the future.

“We are taking advantage of the current market weakness to build a position in FGVH similar to our stakes in other major plantation companies like KLK, IOI, Sime Darby and United Plantation,” it said.

FGVH is the third-largest listed palm oil operator globally by landbank, and the second largest in Malaysia.

It further stated that it has always been a responsible investor which monitors its investments closely.

Despite the initial euphoria over its listing, the world’s second largest IPO this year, share prices dropped close to its 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.

Premature confidence?

This comes after the government boasted a 20% rise on prices on June 28 when it made its debut on the stock market although substantial amount of the gains had been given out since.

The shares hit a low of RM4.71 early this morning before rebounding to RM4.76 at mid-day.

FGVH recorded negative profits in the second quarter, down 32.5% from last year due to lower palm oil harvests, increases in operating costs, and lower returns from its sugar subsidiary MSM Holdings.

The group is also coping with ageing oil palm trees which forms 53% of its 320,000 hectares of oil palm estates, which is among the highest in the industry.

This means a replanting exercise would slash income while waiting for new trees to mature.

FGVH is also reported to be struggling with low productivity in terms of tonnes per hectare. The group’s yield is currently the third-lowest among the major Malaysian plantations firms.

Meanwhile palm oil prices are expected to stay low in the near term as Malaysia’s stockpiles remain high amid fierce competition from neighbouring exporter Indonesia.

But some analysts noted that FGVH shares could still be attractive as it offers a steady cash flow as well as a 50% dividend payout policy.

The stock could also profit from anticipation that it may become an index stock and a new proxy for the plantation sector as some other major players diversify into property.


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