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BIMB SECURITIES RESEARCH

MARKET INSIGHTWednesday, 27 June, 2012

Initial Public Offering

PP16795/03/2013(031743)

| 1

Not For Distribution Outside Malaysia

Felda Global Ventures Holdings BuyEfficiency matter

IPO Price: RM4.55

Target Price: (+24.2%)RM5.65

g Keat [email protected]

3-26918887 ext 181

Diversified plantations business. Felda Global Ventures

Holdings (FGVH) was incorporated in Dec07 by FELDA to

venture into overseas upstream and downstream palm oil

activities as well as other agribusiness namely rubber,

soybean, canola, and sugar.

Third largest oil palm player. Subsequent to the 99 years

land lease agreement with FELDA, FGVH have control over

355.9k hectares of plantations land in Malaysia of which

90.9% are planted with oil palm rendering the Group as

the world third largest oil palm planter.

Access to world largest CPO producer. Felda Holdings Bhd

(FHB), a 49%-owned associate, produced approximately

3.3m tonnes of CPO the largest CPO production volume

by single party in 2011. FGVH has a contractual

arrangement with Felda Palm Industries S/B (FPI), a

subsidiary of FHB, where FPI will sell a substantial portion

of the CPO that it produces to FGVH.

Focus on improving efficiency. Going forward, the Groupwill focus on enhancing its existing upstream portfolio

through various measures discipline replanting

schedule, capturing synergies from MSM, and

strengthening the crushing facilities in Canada.

Additionally, the Group will continue to acquire and invest

in refinery assets, consumers packed products plants,

bulking facilities, and specialty fats businesses. The

landbank acquisition target will be at Southeast Asia and

Africa region primarily.

Financial highlights. FGVHs revenue surged to RM7.47bn

in FY11 from RM2.88bn in FY09 due mainly to the newacquisition of sugar business and the downstream

operations in Canada. Higher revenue coupled with better

margin boosted its net income to RM942.2m in FY11,

almost triple that of RM322.3m achieved in FY09. The new

business model is expected to boost its bottomline further

to above the RM1.0bn mark. Based on our average CPO

price assumption of RM3,200/mt for 2012 and

RM3,050/mt for 2013, we expect the Group to achieve

EPS of 31.4 sen and 33.5 sen for FY12 and FY13

respectively.

View and Valuation. By applying a P/E ratio of 18x, wederived a target price of RM5.65 for FGVH translating into

an upside potential of 24.2%. Hence, we have a BUY rating

on FGVH.

Stock Data

Bloomberg Ticker FGV MK Major Shareholders

Market Cap (RM'mn) 16,599 Felda 40.0%

Issued shares (mn) 3,648

Shariah Compliant Y

Financial Highlights

FYE 30 Jun 2009 2010 2011 2012E 2013E

FFB Prod. ('000 mt) 5,3 63.8 4,8 56.1 5,19 7.3 5 ,203.8 5 ,400.6

Turnover 2,880.3 5,804.6 7,474.8 10,742.1 12,837.6

EBIT 471.5 1,323.7 1,475.2 1,717.9 1,760.7

Pretax profit 468.4 1,184.4 1,372.0 1,642.1 1,752.7

Net Profit 322.3 932.0 942.2 1,145.3 1,222.5

EPS (sen) 8.83 25.55 25.83 31.39 33.51

DPS (sen) NA NA NA 16.00 17.00

Div Yield (%) NA NA NA 3.52 3.74

BV/share (RM) NA NA 1.50 1.66 1.83

PE Ratio 51.50 17.81 17.62 14.49 13.58

EBIT Margin 16.37% 22.80% 19.74% 15.99% 13.71%

Pretax Margin 16.26% 20.40% 18.36% 15.29% 13.65%

Effective tax rate 7.58% 21.53% 26.05% 25.00% 25.00%

ROE NA NA NA 19.85% 19.22%

ROA NA NA NA 7.39% 7.58%

Net Gearing (x)

Growth Ratios

FFB NA -9.47% 7.03% 0.12% 3.78%

Turnover NA 101.52% 28.77% 43.71% 19.51%

EBIT NA 180.73% 11.44% 16.45% 2.49%

Pretax profit NA 152.88% 15.84% 19.68% 6.74%

Net profit NA 189.18% 1.09% 21.56% 6.74%

Utilisation of IPO Proceeds Timeframe RM 'm %

Acqus iti on of pl atati ons a ss ets 3yrs 2,190.0 49.1

Acquis ition of oil a nd fats

manufacturing and logistics 3yrs 840.0 18.8Construction / acquisi tion of mil ls

and refineries 3yrs 780.0 17.5

Loa n re pa yme nt - ove rs ea s ope ra 6mths 260.0 5.8

Capital expenditure 2yrs 100.0 2.2

Working capital 6mths 129.0 2.9

Lis ting expenses 6mths 160.0 3.6

Total 4,459.0 100.0
mailto:[email protected]:[email protected]:[email protected]:[email protected]

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27 June 2012 IPO: Felda Global Ventures Holdings

www.bimbsec.com.my Not For Distribution Outside Malaysia | 2

Background & Business

Felda Global Ventures Holdings Berhad (FGVH) was incorporated in Malaysia on 19th

December 2007 as the

commercial arm of Federal Development Authority (FELDA) for overseas venture into the upstream and

downstream palm oil business and other agribusiness namely rubber, soybean, canola, and sugar. Today,

FGVH is the world third largest oil palm plantation planter based on planted hectarage, after Sime Darby and

Golden Agri, and has operations across ten countries.

FGVHs core business activities can be segregated into three main segments upstream plantations,

downstream, and sugar, plus an associate in FHB. The sugar businesses are undertaken by 51%-owned

subsidiary, MSM Holdings. Through FHB, the Group is also involved in other businesses such as transportation

services, bulking installations, fertilizer products, manufacturing of cocoa, livestock operation, etc.

100% 100% 51% 49%

Plantations Downstream Sugar FHB

Malaysia-355,864 ha of 99yrs

leased land

JVs in Indonesia-Trurich (50%) with

42,000 ha of land

-PT Citra Niaga (95%)with 14,385 ha of land

Overseas-1 oleo-chemical facility in US-1 soybean & canola crushing

and refining facility in Canada

JVs-6 refineries in Malaysia,

Indonesia, China, & Turkey

-2 downstream processingfacilities in China & South Africa

- 1 oils and fats facility in US

Malaysia-1 sugar milling facility-2 wholly owned sugar

refineries

-Tradewinds Malaysia(20%)

Milling-70 palm oil mills in Malaysia-5 palm oil refineries and 2

refineries in Pakistan & China

through an associate and a

joint venture-1 oleo-chemical plant throughan associate

Other Businesses-Manufacturing & logistics-Support services

Plantations

The Group has approximately 355,864 hectares of plantation estates in Malaysia under the tenancy

agreements with Federal Land Development Authority (FELDA). The term of lease is for 99 years from 1st

January 2012. The annual fixed lease amount is subject to review every 20 years at FELDAs request and FGVH

is required to pay RM248.5m per annum plus a fixed percentage of its operating profit.

The vast majority of the land is devoted to the cultivation of oil palms with a small amount used to cultivate

rubber trees (approximately 10k hectares). In 2011, the Group has harvested approximately 5.2m metric

tonnes of fresh fruit bunch (FFB) which was sold to Felda Palm Industries S/B (F PALM).

Previously, FGVHs transaction ends at the selling of FFB products but with effect from 1st

March 2012 via a

contractual arrangement with Felda Palm Industries S/B (FPI), FPI is to sell a substantial portion of the CPO

that it produces back to FGVH. The Group will then resell the CPO to third party customers, joint ventures,

and associate companies to produce palm oil-based products.

FGVH has also ventured into Indonesia via Trurich (50%) and PT Citra Niaga (95%). Turich owns 42,000

hectares of land in East and Central Kalimantan, while PT Citra Niaga owns 14,385 hectares of land in West

Kalimantan for oil palm plantation purposes.

FGVH

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Milling

Through 49%-owned Felda Holding Bhd (FHB), FGVH has access to the largest palm oil mills operator in

Malaysia via FPI. FPI which is a subsidiary of FHB, owns 70 palm oil mills with ISO certifications in Malaysia

where 58 are located in the Peninsular Malaysia with the rest based in Sabah and Sarawak. One additional

mill is currently under construction in Johor and it is expected to complete by end of this year At present, the

aggregate annual milling capacity is approximately 20.4m tonnes of FFB.

Downstream

FGVH has two wholly-owned subsidiaries involving in the downstream business; TRT-ETGO in Qubec,

Canada and TRT Holdings in Massachusetts, United States. TRT-ETGO commenced operation in 2010 and is

into the manufacturing of soybean and canola products via a joint venture, Bunge ETGO, with Bunge Canada.

On 9 December 2011, the Group entered into a tolling arrangement with Bungee ETGO where the latter will

provide the soybeans and canola seeds, while TRT-ETGO would process it into soybean and canola products.

TRT Holdings is involved in the production of oleo-chemicals products namely fatty acids and glycerine. FGVH

through another JV with IFFCO group - Felda IFFCO have interests in palm oil refineries and downstream

processing facilities in Malaysia, Indonesia, China, Turkey and South Africa. IFFCO group is a mass-market

consumer goods manufacturer and marketer based in the United Arab Emirates.

Sugar

Activities for this division are predominantly via 51%-owned subsidiary, MSM Holdings Bhd, and 20%-owned

associate, Tradewinds Malaysia Bhd. The Group produce a full range of refined sugar products for both the

commercial and retail sectors with annual production capacity of over 1.1m metric tonnes. Majority of the

sugar products are locally consumed.

Corporate Structure

Source: Company

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Strategies

Going forward, the key strategies for FGVH include:

i. Improving operating efficiency;ii. Accelerating the turnaround of downstream operations in Canada;iii. Expanding downstream capabilities;iv. Landbank optimisation and acquisitions; andv. Intensifying R&D.

FGVH has addressed three main key areas to improve its operating efficiency. Firstly, the Group plans to

replant approximately 15,000 hectares per annum to improve its age profile hence achieving better yield. The

replanting activities will utilise high yielding materials and good nursery practices which would boost future

FFB production and oil extraction rate further. Based on the replanting schedule provided, the Groups age

profile is expected to improve to less than 15 years by 2015.

Replanting Schedule

Source: BIMB Securities, Company

Secondly, the Group will be capturing synergies from the acquisition of MSM through joint raw sugar

purchasing, marketing, and hedging.

Lastly, the Group will apply initiatives to strengthen its soybean and canola crushing facilities in Canada. In

December 2011, the Group has entered into a tolling and JV arrangement with Bunge Canada, a vertically

integrated food and feed ingredient company, to protect its crushing operations from the volatility ofsoybean and canola prices.

Realising that downstream activities are essential to enhance the value of the upstream activities, FGVH will

continue to acquire and invest in (i) refinery assets, (ii) consumers packed products plants, (iii) bulking

facilities, and (iv) specialty fats businesses. As for the sugar division, the Group intends to double and possibly

quadruple its existing sugar production and storage capacity. Going forward, FGVH will continually seek to

expand its landbank with the main focus on the Southeast Asian region and followed by the African region.

2.12.7

4.7

6.3

5.2

12.012.7

8.2

13.714.4

15.3 15.0 15.0 15.0

13.0

13.5

14.0

14.5

15.0

15.5

16.0

16.5

17.0

17.5

0

2

4

6

8

10

12

14

16

18

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Years'000 ha

Replanting area Average Age

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Financial Highlights

Aggressive growth through acquisition and new business model.Over the past 3 years, FGVHs revenue has

surged over 159.0% to RM7.47bn in FY11 from RM2.88bn achieved in FY09. This significant increase is

attributed to the acquisition of MSM Holdings Bhd, and the commencement of the downstream operations in

Canada. Going forward, we expect FGVHs new business arrangement with FHB into the trading of palmproducts produced by FHB, to boost its revenue to above RM10.0bn in FY12.

Revenue and Growth Rate


Slower net income growth. The new businesses had almost tripled FGVHs net income to RM932.0m in FY10

from RM322.3m recorded in FY09. For FY11, Groups earnings were hampered by impairments losses from

the soybean and canola operations in Canada amounting RM164.7m. Despite the hiccup, net income is

expected to hit above RM1.0bn in FY12 predominantly from the new venture from the trading of palm

products. Nonetheless, we project that the growth rate in net income of 21.6% to lag that of revenue (+40%

for FY12) as trading businesses generally command lower margins. Based on the enlarged share based of

3.65bn shares, FGVHs prospective EPS is estimated at 31.4 sen and 33.4 sen for FY12 and FY13 respectively.

Net income and Growth Rate


2.9

5.8

7.5

10.7

12.8

0%

20%

40%

60%

80%

100%

120%

140%

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2009 2010 2011 2012 2013

RM 'bn

Revenue Annual growth rate

322.3

932.0 942.2

1,145.31,216.9

0%

5%

10%

15%

20%

25%

30%

35%

0

200

400

600

800

1,000

1,200

1,400

2009 2010 2011 2012 2013

RM 'm

Net Income Annual growth rate

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Squeezed in margin on trading business. In FY11, FGVH experienced a drop in profit margins with pre-tax

margin from over 20.4% to approximately 18.4%, a drop of 2.0 percentage points. Profit margins are expected

to ease further following the venture into trading of CPO. As such, pre-tax margin is expected to drop to

15.3% in FY12 and down further to 13.6% in FY13 on lower CPO price assumption.

Profit Margins and ROE


Minimum 50% dividend payout. The Board of FGVH intend to adopt a dividend payout ratio of at least 50%

of its profit after tax attributed to shareholders. However, the actual payout will be recommended only after

considering various factors outlined below:

i. the level of cash, gearing, ROE and retained earnings;ii. expected financial performance;iii. projected level of CAPEX and other investment plans; andiv. working capital requirements.

28.8%

19.8% 19.1%

0%

5%

10%

15%

20%

25%

30%

35%

0%

5%

10%

15%

20%

25%

30%

35%

2009 2010 2011 2012 2013

ROE Gross margin Pre-tax margin PAT margin

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DEFINITION OF RATINGS

BIMB Securities uses the following rating system:

STOCK RECOMMENDATION

BUY Total return (price appreciation plus dividend yield) is expected to exceed 10% in the next 12 months

OUTPERFORM The stock is expected to perform ahead of the market in the next 12 months

TRADING BUY The stock is expected to outperform the market in the next 3 months

NEUTRAL The stock is expected to perform in line with the market in the next 12 months

TRADING SELL The stock is expected to underperform the market in the next 3 months

SELL An expected price depreciation of more than 10% in the next 12 months

SECTOR RECOMMENDATION

OVERWEIGHT The Industry as defined by the analysts coverage universe, is expected to outperform the relevant primary market

index over the next 12 months

NEUTRAL The Industry as defined by the analysts coverage universe, is e xpected to perform in line with the relevant primary

market index over the next 12 months

UNDERWEIGHT The Industry as defined by the analysts coverage universe, is expected to underperform the relevant primary market

index over the next 12 months

Applicability of ratings

The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings

are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do

not carry investment ratings as we do not actively follow developments in these companies.

Disclaimer

The investments discussed or recommended in this report not be suitable for all investors. This report has been prepared for information

purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of BIMB Securities SdnBhd

may from time to time have a position in or either the securities mentioned herein. Members of the BIMB Group and their affiliates may

provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was

obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts areaccurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such.

No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report

constitute our judgements as of this and are subject to change without notice. BIMB Securities SdnBhd accepts no liability for any direct,

indirect or consequential loss arising from use of this report.

Published by

BIMB SECURITIES SDN BHD (290163-X)

A Participating Organisation of Bursa Malaysia Securities Berhad

Level 32, Menara Multi Purpose, Capital Square,

No. 8 Jalan Munshi Abdullah,

50100 Kuala Lumpur

Tel: 03-2691 8887, Fax: 03-2691 1262 Kenny Yee

http://www.bimbsec.com.my Head of Research
http://www.bimbsec.com.my/http://www.bimbsec.com.my/http://www.bimbsec.com.my/

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