BIMB SECURITIES RESEARCH

MARKET INSIGHT
PP16795/03/2013(031743)

Wednesday, 27 June, 2012

Initial Public Offering

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Felda Global Ventures Holdings

Efficiency matter
Stock Data
Bloomberg Ticker Market Cap (RM'mn) Issued shares (mn) Shariah Compliant FGV MK Major Shareholders 16,599 Felda 3,648 Y 40.0%

Buy
IPO Price: RM4.55 Target Price: (+24.2%)RM5.65

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 Group will 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 new acquisition 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, we derived a target price of RM5.65 for FGVH translating into an upside potential of 24.2%. Hence, we have a BUY rating on FGVH.

Financial Highlights
FYE 30 Jun FFB Prod. ('000 mt) Turnover EBIT Pretax profit Net Profit EPS (sen) DPS (sen) Div Yield (%) BV/share (RM) PE Ratio EBIT Margin Pretax Margin Effective tax rate ROE ROA Net Gearing (x) 2009 5,363.8 2,880.3 471.5 468.4 322.3 8.83 NA NA NA 51.50 16.37% 16.26% 7.58% NA NA 2010 4,856.1 5,804.6 1,323.7 1,184.4 932.0 25.55 NA NA NA 17.81 22.80% 20.40% 21.53% NA NA 2011 2012E 2013E 5,197.3 5,203.8 5,400.6 7,474.8 10,742.1 12,837.6 1,475.2 1,717.9 1,760.7 1,372.0 1,642.1 1,752.7 942.2 1,145.3 1,222.5 25.83 31.39 33.51 NA 16.00 17.00 NA 3.52 3.74 1.50 1.66 1.83 17.62 14.49 13.58 19.74% 18.36% 26.05% NA NA 15.99% 15.29% 25.00% 19.85% 7.39% 13.71% 13.65% 25.00% 19.22% 7.58%

Growth Ratios
FFB Turnover EBIT Pretax profit Net profit NA NA NA NA NA -9.47% 101.52% 180.73% 152.88% 189.18% 7.03% 28.77% 11.44% 15.84% 1.09% 0.12% 43.71% 16.45% 19.68% 21.56% 3.78% 19.51% 2.49% 6.74% 6.74%

Utilisation of IPO Proceeds Timeframe RM 'm Acqus i tion of pl a ta tions a s s ets 3yrs 2,190.0 Acqui s i tion of oi l a nd fa ts ma nufa cturi ng a nd l ogi s tics 3yrs 840.0 Cons truction / a cqui s i tion of mi l l s a nd refi neri es 3yrs 780.0 Loa n repa yment - overs ea s opera tion 6mths 260.0 Ca pi ta l expendi ture 2yrs 100.0 Worki ng ca pi ta l 6mths 129.0 Li s ting expens es 6mths 160.0 Total 4,459.0

% 49.1 18.8 17.5 5.8 2.2 2.9 3.6 100.0

Ng Keat Yung nkyung@bimbsec.com.my 03-26918887 ext 181

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27 June 2012

IPO: Felda Global Ventures Holdings

Background & Business

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

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. FGVH 100% Plantations Malaysia
- 355,864 ha of 99yrs leased land

100% Downstream Overseas

- 1 oleo-chemical facility in US - 1 soybean & canola crushing and refining facility in Canada

51% Sugar Malaysia

- 1 sugar milling facility - 2 wholly owned sugar refineries - Tradewinds Malaysia (20%)

49% FHB 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 through an associate -

JVs in Indonesia
- Trurich (50%) with 42,000 ha of land - PT Citra Niaga (95%) with 14,385 ha of land

JVs
- 6 refineries in Malaysia, Indonesia, China, & Turkey - 2 downstream processing facilities in China & South Africa - 1 oils and fats facility in US

Other Businesses
- Manufacturing & logistics - Support services

Plantations The Group has approximately 355,864 hectares of plantation estates in Malaysia under the tenancy st agreements with Federal Land Development Authority (FELDA). The term of lease is for 99 years from 1 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 1 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.
st

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27 June 2012 Milling

IPO: Felda Global Ventures Holdings

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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27 June 2012

IPO: Felda Global Ventures Holdings

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; and v. 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 '000 ha
18 16 14 12.0 12 10 8 6 4 2 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Replanting area Average Age Source: BIMB Securities, Company 2.1 2.7 4.7 6.3 5.2 8.2 13.7 12.7 14.4 15.3 15.0 15.0 15.0

Years
17.5 17.0 16.5 16.0 15.5 15.0 14.5 14.0 13.5 13.0

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 of soybean 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.

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27 June 2012

IPO: Felda Global Ventures Holdings

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 palm products produced by FHB, to boost its revenue to above RM10.0bn in FY12. Revenue and Growth Rate
14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 2009 2010 Revenue 2011 2012 Annual growth rate Source: BIMB Securities, Company 2013 2.9 5.8 7.5

RM 'bn
12.8 10.7

140% 120% 100% 80% 60% 40% 20% 0%

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
1,400 1,200 1,000 800 600 400 200 0 2009 2010 Net Income 2011 2012 Annual growth rate Source: BIMB Securities, Company 2013 322.3 932.0 942.2

RM 'm
1,145.3 1,216.9

35% 30% 25% 20% 15% 10% 5% 0%

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27 June 2012

IPO: Felda Global Ventures Holdings 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
35% 30% 25% 20% 15% 10% 5% 0% 2009 ROE 2010 Gross margin 2011 2012 Pre-tax margin 2013 PAT margin Source: BIMB Securities, Company 19.8% 19.1% 28.8% 35% 30% 25% 20% 15% 10% 5% 0%

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

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27 June 2012

IPO: Felda Global Ventures Holdings

Recommendation & Valuation

Peg at higher end valuation. Based on the latest 3 year historical data, we have derived a fair P/E ratio range of between 15.0x 18.0x. Considering its landbank and the access to the world largest CPO producer, FGVH is expected to trade at the higher end of the P/E band. Though there are concerns over the Groups tree age profile where 16.9% are over 25 years and 36.0% are between 21 25 years, we do not foresee a significant decline in FFB yield. Instead, we reckon the Groups disciplined replanting schedule with more efficient planting materials should improve the Groups overall performance in the long run. Valued at RM5.65. Based on our average CPO price assumption of RM3,200/mt for 2012 and RM3,050/mt for 2013, we expect the Group to record an EPS of RM31.4 sen for FY12. Applying the P/E ratio of 18.0x, we derived our target price at RM5.65, representing an upside potential of 24.2%. If one is to place FGVHs valuation based on our FY13 figures, we can expect the share price to exceed the RM6 mark on similar valuation parameters pushing its fair value to RM6.03. BUY. 3 years P/E Ratio Statistics
Bursa Plantation Index Sime Darby* IOI Corp KLK Genting Plant. IJM Plant. Average 14.92 18.28 18.13 18.41 17.89 17.16 Std Dev. 2.75 4.99 4.38 2.88 2.99 3.74 Min 9.31 11.64 12.38 12.97 11.27 11.21 Max 21.42 28.30 29.87 27.20 24.09 25.89
Source: BIMB Securities, Company

* excluding P/E ratio > 30

Industry and Comparable Peers Historical PE Ratio

33 28 23 18 13 8

Jun-10

Jun-09

Jun-11

Apr-10

Apr-11

Dec-09

Dec-10

Dec-11

Feb-10

Feb-11

Aug-09

Aug-10

Aug-11

Bursa Plantation Index KLK

Sime Darby Genting Plant.

IOI Corp IJM Plant.

Source: BIMB Securities, Company

Feb-12

Apr-12

Oct-09

Oct-10

Oct-11

Jun-12

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27 June 2012
DEFINITION OF RATINGS BIMB Securities uses the following rating system:

IPO: Felda Global Ventures Holdings

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 expected 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 are accurate 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 http://www.bimbsec.com.my

Kenny Yee Head of Research

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