Posted by Pak Lah > 2014-03-28 17:15 | Report Abuse

Uncle Koon, thank you for enlightening us. FGV flied and closed at RM4.70, possibly reacted to your articles.

Posted by iamalex > 2014-03-28 17:16 | Report Abuse

thx

Posted by Jonathan Keung > 2014-03-28 17:29 | Report Abuse

that's a few write up on FGV prior to their listing. the main concern on FGV is their high percentage of aging palm ( ie. above 20 -25 years ) which is due for replanting.

In addition, their structure is bind by the guarantee to aside at least 20% of their dividend to Felda Koperasi ( as a form of social obligations) Their yield per hectare is lower compared to other plantations.

This is the one of many reason, why FGV try to diversify their earning base to hotels, biodiesel and trading. Last but not the least alot of their own CPO is traded in house ( pricing from plantation to Oil Mill)

this is my personal observation. happy trading

Posted by Koon Yew Yin > 2014-03-28 18:17 | Report Abuse

No, I am not involved in CPO future because I have a lot of good plantation shares to buy.

Posted by Steven Yong > 2014-03-28 18:25 | Report Abuse

any plantation stock is better than this fgv. ioi, genp, tsh

Posted by Steven Yong > 2014-03-28 18:47 | Report Abuse

look at the yield you will know how good the company being managed.

Posted by Madam YaSer > 2014-03-28 18:52 | Report Abuse

sebab dah cukup baik buat apa nak analyst lagi hehehe

Posted by sotsot1986 > 2014-03-28 19:28 | Report Abuse

Mr Koon, i don't mean to offend you. But i just wanna to point out my view about FGV.

Normally the market oil extraction rate of CPO in between 21% to 23% and Kernel oil in between 5.5% to 5.8%. From the production report, you may assume there were nearly 50% of FGV's CPO production not come from their own FFB. FGV have to pay out 19.5% (CPO)and 5.25% (Kernel) to those small estate owner who are providing FFB to them. The FGV only earn for the spread about 2.5% to 3.5%(CPO) and 0.25% to 0.50% (Kernel). That why when CPO went up about RM500, they only make extra profit of RM15.00 to RM25.00.

And i dislike FGV because the management was inefficient and dishonest. They told the small estate owner with oil extraction rate 18.5%, there are so much lower from the market rate.

Posted by Mobius > 2014-03-28 20:49 | Report Abuse

Mr.Koon,what do you think about kretam and TDM? Is it a good buy now? Thank You

Posted by Koon Yew Yin > 2014-03-29 06:57 | Report Abuse

I appreciate Jonathan's and sotsot's opinion. I always welcome readers's point of view. I always remember that if I do not look at others point of view, I will never learn any thing new.

But, I hate to read some sarcastic remarks or abusive ridicules. For example, the first comment for my previous article "Best Time To buy Plantation Stocks" was quote 'Again Koon wants to promote Jaya Tiasa'.

I am 81 years old and before I die, I just want to share all my accumulated knowledge with you and give away all my accumulated wealth, mostly from the stock market to do charity.

In all normal cases of stock selection, I will consider all those factors you mentioned above. But in this case of FGV, I just look at the estates and not at the palms. As I said, even if the management is inefficient, FGV will get an additional Rm 1.59 billion for doing nothing. By the way, FGV also received about Rm 5 billion cash at the IPO.

That is why I wrote this article to point out that all the professional analysts complained about small issues and they did not look at the big picture.

To answer Mobius' question, as I said due to the additional profit from the CPO price differences of last year and this year, all plantation companies will get additional profit for doing nothing. Kretam, TDM and all plantation companies will benefit and you are free to choose.

My choices are JT, Kulim, FGV, SOP, Sarawak Plant and TH Plant which formed about 80% of my total investment.

Many of my personal friends asked for my opinion of their holdings in properties, banks, industries and in other sectors. My answer is I am not sure about the shares you are holding, but I am 100% sure the almost all plantation companies will be able to make more profit this year than last year which is the most important consideration in stock selection.

Have you seen any reasonable good company's share price come down if the company is making more and more profit?

Posted by charlie chia > 2014-03-29 07:22 | Report Abuse

Mr Koon
Of 6 counters you hv mentioned
which is the best counter to invest
just concentrate in one will do

Posted by Ricky Kiat > 2014-03-29 08:30 | Report Abuse

Agree

Posted by Taugeh > 2014-03-29 09:48 | Report Abuse

Hi, Mr. Koon buddy,

Great to see you here, thank you very much for sharing valuble info. It's our honour indeed to have you on board.

my email is taugeh1238@gmail.com, I think Sarawak plantation is better coz given more dividends.

regards

Posted by nsk82 > 2014-03-29 10:13 | Report Abuse

Uncle Koon, i would not be so optimistic about forthcoming 1.5 billion profit on FGV's plantation sector.

Conservatively, i would be happy to put forward additional Rm500 million windfall for FGV due to current price surge in CPO commodity.

On a side note, could you offer to write about prospects of property in Malaysia ? I am pretty sure that you have many keen audience

thank you.

Posted by lohman > 2014-03-29 10:35 | Report Abuse

FGV is one enormous cash cow, with EPF the mother of them all. Leak a few hundred RM million here and there every year, no one really feels the pinch. But therein lies the moral hazard. If the leak is right at the top and is not immediately stopped, over time a hundred tiny leaks may spring up everywhere. Just look what happened to Sime Darby, a venerable conglomerate, besmirched by previous top management's questionable ethics and still recovering from reputation damage. I don't like FGV's expensive diversification. For their top guy, an ex-politico with a questionable past, it's just too tempting to lay hands on some of the cash pile. And just too easy with all the hasty deal making.

Posted by Steven Yong > 2014-03-29 11:01 | Report Abuse

for me, plantation shld go for ioi, klk, tsh, utdplnt. they are more well managed. also moving forward, company with rspo will be important. now many institution buyer wont or not allowed to buy those non environment fremdly comp

Posted by Soo Cheng > 2014-03-29 11:48 | Report Abuse

though IOI, KLK and UPlant are good companies but their share price is too steep for those with limited cash to buy these counters.

Posted by lmenwe > 2014-03-29 12:28 | Report Abuse

Felda is targeting CPO 3.3 million tonnes however the real output maybe 3%-5% below target. To make things easier let us use Mr Koon's estimation at 3.186 million tonnes.

A RM 500 difference will add RM 1.59 billion into FGV bottom line?
Ok let us assume that Felda with additional RM 1.59 billion before tax and zakat. Last year profit before tax and zakat at RM 1.54 billion and excluding other gains of RM 492 million it will become RM 2.64 billion. With last years tax rate of 26.03% net profit will be RM 1.95 billion! With a total number of shares of 3.65 billion, eps will be a whopping 53 cents. Market price of RM 4.70 FGV is only worth 8.87x 2014 pe. Wow everyone should pawn their underwears to buy this counter.

Wait additional RM 500 per MT will add RM 1.59 billion? Yup provided that revenue equal to profit. In fact Felda is selling at RM 2,843 per MT in 2012 but its net profit is only RM 905.508 million. 2013 plantation revenue at RM 18.07 billion, PBT at RM 686.869 million or profit margin of 3.8%. 2012 revenue at RM20.29 billion pbt at RM 1.33 billion or 6.6%. With Felda guidance of CPO production at 3.3 million MT or a 0.6% gain compared to 2012. I doubt they will be a huge diffrent for PBT contributed by plantation. By the way according to 2012 annual report Felda purchase from third party settlers with 500,000 hectares and their own FFB production is only 5.05 million tonnes in 2013. Eventhough they produce 3.21 million MT of CPO in 2013 but with their 2012's OER of 20.51% the total FFB used is 15.65 million MT which means the in house FFB only accounted for about 32.27%. This explain the extraordinarily low PBT margin for its upstream plantation segment.

At RM 4.70 Felda's market value come at RM 17.15 billion ringgit. With RM 4.35 billion of borrowing and RM 5.02 billion Enterprise Value stood at Rm 16.48 billion! Using 2011 net profit of RM 1.33 billion. EV/Net Profit come in at 12.4x while PE come in at 12.9x. If Felda only achieve 2012's profit of RM 1.04 billion (excluding other losses of RM 205 million). EV/net profit come in at 15.84x while PE stood at 16.49x. To me this is not a bargain there are numbers of counters with younger age profile and better quality of management compared to this inefficient and poorly manage giant.

Felda's current yield is 19.59 MT/ha. According to MPOB Malaysia average FFB yield at 19.02 tonnes. Felda's land bank at 343,521 hectares. Felda is replanting 15,000 hectares per year and expect to achieve OER of 24% and FFB yield of 30 MT/ha with its award winning Yangambi material. With around 54% of trees need to be replanted in 2011 (about 185,501 hectares), the replanting takes 13 years to complete. And to mature the tree need to reach 7 years old. I believe everyone now should know that after the first phase of replanting ended they need to replant the current productive trees which stood at 17% in 2011.

You can call me stereotyping but with the previous GLC experience I have doubt on this counter. I know they have RM 5 billion of war chest on hand but I have doubts on their ability to grow the business diversification might not be good especially entering cut throat logistic.

Posted by sosfinance > 2014-03-30 13:55 | Report Abuse

1. Imenwa - very good analysis. It confirmed that it is not that straight forward to calculate FGV's additional profits. In short, a lot of guessing work. So, one have to explain why with 2012 average CPO price of RM2843 gives a net profit of only RM900m? Lack of transparency?

2. GLC + inefficient and quality of management seems to go hand in hand. Not many GLCs does well in long run.

3. The problem about the more you know equates to the less you know. Sometimes, knowing too much makes one to be adverse in investing.

Posted by Koon Yew Yin > 2014-03-30 14:48 | Report Abuse

I am so happy to know that many people like Imenwe and optimus7 who used to ridicule my writings are now supporting me.

After reading your commentaries especially regarding FGV's old age palm profile, investors should not be too concerned. In fact, when the CPO price is so good, FGV should stop replanting until CPO price is lower to take advantage of the additional profit. Why should they cut down any palm when it is producing additional profit?

With regard to their seemingly careless spending of their cash in buying a logistic company which I believe can be useful to improve their shipment of huge amount of CPO, fertiliser, equipment etc. In any case, the amount of money involved is so small in comparison with the huge amount of additional windfall profit.

As I said, when FGV shows its windfall profit in the next few quarters, its share price should shoot and you can sell your shares to buy some other shares which you prefer. That is my strategy. You may ask 'How do you know?' My answer 'I have used this trick before!!!

Posted by MZRTrade > 2014-03-30 15:49 | Report Abuse

Thank you Mr.Koon. Tdm also got potential too.. only 0.93, the cheapest plantation stock and have good fundamental too. Potential to rise up.

Posted by bengkoon > 2014-03-30 15:59 | Report Abuse

Uncle Koon, are you not worried when these companies manage and run by those protected “Putra” and “Puteri” like the MSA? The so-called “Malay Supremacy”, “Ketuanan Melayu” And “Tanda Putra”? How sure you are the ordinary folks are not caught by another lie? People who are unable to motivate themselves must be content with mediocrity, no matter how impressive their other talents. There is a real magic in enthusiasm. It spells the difference between mediocrity and accomplishment.

Posted by Alphabeta > 2014-03-30 17:05 | Report Abuse

If i read Uncle Koon correctly, FGV fundamental performance is not his main concern here. His angle is based on uptrend in CPO price and upstream plantation players profitability is very sensitive to this.

So he is inviting you to go for a short ride on FGV to catch the wave before it comes. He already told you he has tried this trick before. Since majority of the retailers trade on momentum, why not?

Ok, Uncle Koon, "I will follow you". At least FGV dividend yield is around 3.4% at current market price.

Posted by lmenwe > 2014-03-30 17:31 | Report Abuse

Dear sosfinance, I believe the ultra low profit margin in their upstream plantation business is due to their corporate structure. Initially the gov wish to list the whole Felda Group. However due to the strong rejection from the settlers only 350,000 hectares of the out of 900,000 hectares are listed. I believe the IPO prospectus has explanation on this but I am not motivated to read a thousand pages with tonnes of useless info. Btw the drastic fall in 2012 was due to other losses on its LLA agreement.

Posted by lmenwe > 2014-03-30 17:57 | Report Abuse

Dear Mr Koon, as per my previous comment with a selling price of RM 2,843 per MT the plantation business can only achieve PBT of RM 1.33 billion. Even without the other losses of RM 205 million the net profit is merely RM 1.04 billion. Even we are using 2011's net profit of RM 1.33 billion the market price doesn't look cheap! 2011 CPO prices are way higher than now but the net profit doesn't appear to be much higher than now. Even they stop the replanting it doesn't help at all. As per my

Regarding the RM 5 billion on hand there are tonnes of records for sabotage on funds by the GLCs. Logistic to improve their efficiency? If this can work why there is no other plantation companies entering this business? As far as i know only sg listed kencana agri was involved in logistic business.
I
Your assumption of additional RM 1.59 billion are totally ridiculous. It is impossible to achieve this unless Felda have a profit margin of 100%。 To ride the rally of CPO prices there are numbers of prudent counters to bet on rather than FGV which does not appear to be cheap enough.

Last even though the risk of El Nino is higher now, but there are still chances for it not to happen. Those with the most pessimistic view said that yield can only recover after a year however those who are optimistic said yield will recover within 6 months! Ok even with a lower CPO yield U.S. going to plant another record acreage of soybean this year! The price spread between soyoil and palm oil are currently at historical low now I doubt how much it has.

Posted by Koon Yew Yin > 2014-03-30 18:46 | Report Abuse

Imenwe, I appreciate your opinion. You mentioned that there are many other plantation shares which are better bets. I agree with you. That is why I have been accumulating Kulim, SOP, Sarawak Plant and TH Plant. Of course JT is my largest holding and Kulim is my 2nd largest.

AS I said, the high tide will carry all boats higher.

Posted by sosfinance > 2014-03-30 20:38 | Report Abuse

I think both imenwe and Mr Koon are right. One is from a financial analyst's perspective and the other is from a business perspective. I can understand that the plantation is a cyclical biz, hence, from a biz perspective, we take advantage of it while it last (not here for long term). Hence, it is a short term investment (it would not be too smart to invest in FGV for long term knowing that the management is not up to par).

FGV is the largest plantation company listed in Malaysia, it is hard for big funds to ignore it. I understand the unit trust funds size is say RM350bil plus and grow about 10-15% yearly, where do the funds go? So, they will buy and sell, only long term holder like EPF/PNB/Long Term Holders (e.g. investment in MAS) will suffer eventually. So, the risk of them going down is low (since CPO already traded at a low of RM2250 in 2013).

Another lesson we should learn here is 'the high tide will carry all boats higher' (so management efficiency is not important + they also need a bit of time to use up the RM5bil). Lesson learned. Thank you imenwe and Mr Koon, for their opinions.

Posted by ATOZ > 2014-03-30 21:59 | Report Abuse

Mr imenwe and Mr Koon, thanks for your both analysis. But I still feel that the way FGV using their war chest to buy those not so related companies i.e. Iris Corporation and maybe Encorp or Century Logistics is not so prudent. It think they should stick to their plantation business and try to improve their efficiency. Thanks.

Posted by lmenwe > 2014-03-31 01:49 | Report Abuse

Dear Atoz that's why I always said having tonnes of cash on hand doesn't mean the shareholders will benefited. Given the track record of GLCs most of the time the cash will be wasted on ridiculous merger and acquisitions.

Posted by lmenwe > 2014-03-31 02:07 | Report Abuse

Dear sosfinance, as per what I had said Felda's current market price doesn't appear to be cheap. Using 2012's net profit it is now traded at a hefty P/E of 16.49x. Even with 2011's net profit the current price is already traded at 12.9x which i do not think FGV is able to achieve. Don't forget that even CPO prices are pushed up by El Nino planters will have substantial losses in FFB yield. A 12.9x PE doesn't appear as a bargain since it is lack of growth and the tree profiles are way beyond acceptable level. I don't think buying into this counter on hope that CPO prices will push every single plantation counters price higher fit into Graham and Klarman's definition of investment and margin of safety. Of course both of them did invest heavily in low quality securities but that is under pre-requisition that they are ridiculously cheap. Does FGV fit into this requirement?

Frankly speaking I feel the action of hoping FGV prices will be push up by higher CPO prices is a pure speculation rather than investing.

I totally disagree with your view that speculating FGV is a wise business decision. I am speaking on the perspective of business owner. As what Graham and Buffett said the most business like decision is the best investment decision. I am considering myself as owner of a counter rather than punting or focus on the quarter by quarter results like those sell side analysts.

I am fed up commenting on counter that is totally unattractive to me. This will be my last post on FGV.

Posted by Ricky Kiat > 2014-03-31 08:32 | Report Abuse

imenwe, which one plantation stock u already bought? which counter are attractive to u recently ?

Posted by lmenwe > 2014-03-31 08:59 | Report Abuse

My counter was bought during 2013 and during the peak in 2012. As I said before I bought sg counters - bumitama and first resources. No recommendation for buying and selling.

Posted by ATOZ > 2014-03-31 22:09 | Report Abuse

Mr Imenwe, thank you very much for commenting on FGV. I feel disappointed on this company too.

Posted by Alphabeta > 2014-04-01 10:11 | Report Abuse

Uncle Koon, some selling pressure now on FGV. A lot of negative remarks. Still try to board the boat at low tide. Any recommendation on entry price based on technical analysis. Any comments from technical expert is welcome?

Posted by Koon Yew Yin > 2014-04-01 11:44 | Report Abuse

Alphabeta, I must tell you and other readers that I am also not sure what is the best price to buy. As you know there are so many discouraging opinions, but I just bought a relatively small amount and hope the tide will lift it up. This is not my major holding.

The price chart shows that the price has been falling since its IPO and I am just nibbling every time it falls a few sens. A professional chartist will wait for it to make a new price spurt before he buys.

Posted by Alphabeta > 2014-04-01 12:25 | Report Abuse

Thank you,Uncle Koon. will buy some first. Though profit margin of this counter not so good compared to other Plantation Counters, its equity multiplier is much better compared to others. I believe any uplift on CPO price will improve its ROE.

Posted by Alphabeta > 2014-04-01 16:10 | Report Abuse

The equity multiplier effect is mainly due to LLA arrangement for 99 years between FGV and Felda which in turn gave them the right to control over cost of fertiliser application and replanting of estates.

It will take time for them to drive improvements in its operational efficiency.

Posted by nsk82 > 2014-04-02 17:48 | Report Abuse

Pontian United Plantation will give FGV a boost in the arm.


http://www.theedgemalaysia.com/business-news/283234-update-fgv-sees-20-profit-contribution-from-newly-bought-pontain.html

Posted by nsk82 > 2014-04-11 21:31 | Report Abuse

RHB gives a TP 5.00 for FGV

http://cdn1.i3investor.com/my/files/dfgs88n/2014/04/11/1480244289-1417647836.pdf

Posted by Gemlover > 2014-04-25 11:57 | Report Abuse

Mr Koon, I have gone through FGV's FFB & CPO production after reading your posting. The actual FFB produced by FGV is 5,138,078 Tons for 2013 and based on 20% extraction rate, the CPO produced is only 1,027,615 Tons and not 3,186,000 Tons mentioned in your posting. The 3,186,000 Tons CPO that you used in your profit forecast actually is inclusive of outside CPO purchased by FGV for their refineries business. Their 4Q13 gross profit is only RM51.84m and if not for their fair value gains on Land Lease Agreement liability of RM346m FGV's 2013 EPS is only 14.5C. A point to note is that FGV's plantation are ageing and much of their palms needs replanting so this may impact their future revenue. I think there are better plantations companies than FGV if one is going to venture into this sector.