Been away for awhile, but following developments closely. What got me tickled was that FGVH is being touted as the 2nd largest IPO this year, behind FACEBOOK...

Hope it doesnt lose FACE like the book with dismal 1st week prices. But, here in Bolehland, I want to share the FACTS:

Felda Global Ventures Holding Berhad’s (FGVH) impending listing on Bursa Malaysia is attracting wide interest throughout the world, especially after Indonesian palm oil plantations company, Bumitama Agri’s initial public offering (IPO) on Singapore’s stock exchange received overwhelming investor response, attracting an oversubscription of 30 times for its share offer.  

Both offerings are  not a coincidence. Global demand for CPO is at a CAGR of 4.8% and will reach 74.5 million tonnes in 2015, a jump from 62.7 million tonnes in 2012. The interest in bio-fuels and bio-mass has also attracted more interest in the sector. Many companies are clamoring to join the ranks of more than 20 key industry players already operating in the oil palm sector. More than half of this, or approximately  11 companies are  Malaysian.  Those further afield like Nigeria and other African nations are also increasingly attracted by the relatively high margins of return on the business which is currently around 30%.

However, FGVH’s key advantage is that it manages large land banks located in areas that can produce the highest yields; within 0 – 20 degrees of the equator with high temperature and humidity and evenly distributed annual rainfall. In addition to the approximately 325,000 hectares of land planted with palm oil, which is leased from FELDA, it has also acquired a 95% interest in PT Citra Niaga which owns 14,385 hectares in West Kalimantan, Indonesia earmarked for oil palm plantations. FGVH has also established a 50 : 50 joint venture with Lembaga Tabung Haji  to further develop 42,000 hectares of oil palm plantations in East and Central Kalimantan.

This significant land bank points to FGVH managing the largest mature planted area in Malaysia while globally, it is the third largest oil palm plantation operator.

In terms of CPO production, Felda Holdings Berhad (FHB), of which FGVH holds a 49% equity stake, is the leading CPO producer globally with a production volume of 3.3 million metric tonnes or 6.6% of global production. The annual average local delivered prices for CPO in Malaysia have increased from RM836.5 per metric tonne in 1991 to RM3,219 per metric tonne in 2011 and is likely to be sustained in the short to medium term.

Palm products now constitute 42% of FGVH’s 2011 revenue of RM7.4 billion as stated in its draft prospectus on the Securities Commission’s website.

FGVH has earmarked Southeast Asia and Africa as priority regions to increase its oil palm plantation land bank. It also plans to replant 15,000 hectares of its existing land bank to improve the age profile of its plantation and increase its current yield of close to 20 metric tonnes of fresh fruit bunches (FFB) per hectare per annum. By leasing the land from FELDA, FGVH will have better control of the replanting programme and will drive efficiency improvements. All trees above 25 years old yielding less than 18 metric tonnes of FFB per hectare per annum will be replanted in stages.

In addition to oil palm, FGVH also cultivates and harvests cup lumps on 10,308 hectares of rubber plantations on FELDA-leased land. Malaysia is still a relatively large player in this industry with one million hectares planted with rubber, behind Indonesia (3.4 million hectares) and Thailand (1.9 million hectares). The demand for rubber comes primarily from latex products, tyres and tyre-related products, and industrial as well as general rubber products. Far from being a sunset industry, rubber is still relevant with global prices on the increase from RM2.43 per kg of SMR in 2000 to RM13.50 per kg in 2011.

It is pertinent to note that Malaysia is the world's leading producer and exporter of catheters, latex threads, and natural rubber medical gloves, supplying more than 80% of the world market for catheters, 70% for latex threads, and 60 % for rubber gloves.

FGVH therefore sees rubber as a profitable member of its plantation business. It plans to increase its plantation land bank to 30,000 hectares by 2015 by converting up to 10,000 hectares of sugar plantations and low-yielding oil palm plantations to rubber plantations. In this way, it will optimize its crop portfolio.

On its debut, Bumitama shares traded as high as S$1.02, about 37 percent higher than its IPO price of S$0.745, on volume of more than 195 million shares. It was the top traded stock by value and the second highest by volume in the Singapore market that day.

Given that FGVH is about three times bigger in terms of the size of the plantation that it manages and produces about 10 times more CPO, its listing scheduled for early June 2012 promises to be equally if not more exciting. Lets hope we dont lose FACE over this listing.