FGVH shares a long-term bet, says EPF

Datuk Seri Najib Razak presents a mock cheque to FELDA settlers ahead of the FGVH listing. — File pic

KUALA LUMPUR, Sept 12 — The current market weakness and cyclical nature of plantation stocks are the reason EPF has been snapping up Felda Global Ventures Holdings (FGVH), the pension fund said today.

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

It said that as a retirement fund and long-term investor, the EPF has an extended and positive view on the plantation sector, which is one of the cyclical sectors which has its ups and downs.

“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,” said EPF in a statement.

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

“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,” said EPF.

“As a responsible investor, we always practise close monitoring on the stocks that we have in our portfolio.”

Shares of FGVH, the world’s second largest IPO this year, rose 20 per cent on June 28 when it made its debut on the stock market but has given up a substantial amount of the gains since.

The shares 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.

This morning, the shares hit a low of RM4.71 before rebounding to RM4.76 at mid-day.

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 also has an issue 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 noted, however, that FGVH offers a steady cash flow as well as a 50 per cent dividend payout policy.

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