Flushed with MYR4.4b IPO cash. We initiate coverage on FGVH with a HOLD given its 8% upside to our MYR5.20 TP based on 15x mid- CY13 PER. FGVH provides investors a unique exposure to the world‟s third largest integrated palm oil operator by planted hectarage, and the world‟s largest CPO producer via its 49%-associate, FHB. Growth will be underpinned by its two-pronged strategy: (i) enhancing internal operational efficiencies and productivity, and (ii) organic expansion and M&A activities, backed by its MYR6.0b gross cash as at 30 June 2012 (MYR1.65/share, excluding MYR5.8bn LLA Liability).

Scarcity and rejuvenation. We believe the growing scarcity of prime land in the region adds to FGVH‟s appeal given that its land (355,864 ha in total) is located mostly in Malaysia with ready built infrastructure and amenities. FGVH is also in the midst of rejuvenating its plantations, to turn relatively mature oil palm trees profile into young and productive trees using new high yielding planting materials to boost oil yields. We understand the new oil palm trees are capable of doubling oil yields.

13% 3-year pretax profit CAGR. We estimate that FGVH will reap 8% PATAMI CAGR over 2011-2014. We expect much of the growth to come from the turnaround of its downstream operations, organic growth in its Indonesian palm oil ventures and lower net financing costs post listing. This will help mitigate our relatively flattish FFB production growth forecast for FGVH and marginally weaker CPO price outlook of MYR3,000/t average for 2013-14 vs MYR3,150/t average for 2012 (YTD: MYR3,115/t). Palm oil will remain the key earnings contributor (>75% of yearly pretax profits), followed by its sugar division at ~20%.

M&A in the cards. Given its size, liquidity and earnings growth potential, FGVH deserves a similar PER valuation vis-à-vis its large peers. FGVH presently meets the criteria to be included in the FBMKLCI30 list at the next review. Although close to fairly valued for now, its immediate re-rating catalyst is potential M&A to boost earnings growth, backed by its MYR6.0b cash pile. Its immediate target is an additional 20,000 ha of young oil palm estates from FELDA. FGVH has a policy to pay out at least 50% of yearly PATAMI as dividends.

Source: Maybank Research - 27 Sep 2012