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WSJ: Felda profit dip a disappointment

 | June 27, 2012

Concurring with Najib's detractors, the influential business paper also criticises the firm for its 'flimsy' justification of its weak performance.

KUALA LUMPUR: Wall Street Journal today predicted investors’ disappointment with Felda Global Ventures Bhd and the likelihood of them dumping the state-run commodities firm in the long run.

The influential international business paper said FGVH’s listing may have raised US$3.1 billion (RM9.3 billion) in sales for stocks before its debut on Bursa Malaysia tomorrow but this would not conceal the firm’s weak performance.

In its article entitled “Felda plants seeds of investor discontent”, WSJ said the state-owned palm oil operator had recorded a 50% dip in its first quarter profit yesterday due to higher costs in planting oil palm trees.

This contradicted the FGHV prospectus which touted the firm as one of the world’s best oil palm plantation players when its competitors were performing better.

“The sale saw strong demand from institutional buyers. Yet, two days before the stock was due to debut on the Malaysian stock exchange, Felda sprang a nasty surprise: a roughly 50% drop in first-quarter net profit due in part to higher costs for planting trees.”

FGVH is Asia’s biggest IPO since February 2011 and the world’s second biggest this year behind social media network Facebook’s float, which raised US$16 billion.

The IPO of 2.188 billion shares is currently based on an indicative retail price of RM4.55 a share with an institutional offering of 1.915 billion shares.

Settlers and Felda employees would gain access to 200.6 million shares, or a 5.5% stake, out of a total retail offering of 273.61 million.

This would see a total of RM9.959 billion raised from the listing exercise, with another half a billion ringgit available through an overallotment option of 109.4 million shares.

FVGH reported a net profit of RM1.01 billion last year compared with RM929.4 million previously while its 2011 revenue stood at RM7.5 billion and had been growing at a compounded annual rate of 61% since 2009.

According to the prospectus, RM5.5 billion in gross proceeds from the sale would accrue entirely to the selling shareholders with RM4.5 billion going into capital expenditure.

Prime Minister Najib Tun Razak boasted about the stocks overwhelming take up rate in a bid to counter opposition criticism on FGVH’s poor profit yields and claims that the listing would hurts settlers.

‘Flimsy justification’

WSJ concurred with Najib’s detractors. It also criticised the firm for its “flimsy” justification of its weak performance.

“There can be few excuses for such poor foresight. A plantation company should know the cost of planting new trees. Felda also said it had to pay a higher-than-expected price for crude palm oil. Again, the company should have anticipated this sooner.

“Nasty surprises like this won’t do much to help rekindle investor enthusiasm for IPOs. Nor are investors likely to stick long with Felda if its prospects can wither so quickly,” the paper said.


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