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Sri Lanka Equity Forum » Stock Market Talk » Can GoodHope Asia Holdings (BUKI & CARS subsidiary) become a future Felda ?

Can GoodHope Asia Holdings (BUKI & CARS subsidiary) become a future Felda ?

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The Alchemist

Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
The World's Next Big IPO
A $3.2 Billion Offering Taps Demand for Food and Cosmetics
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By NISHA GOPALAN in Hong Kong and JASON NG in Kuala Lumpur, Malaysia

Malaysian palm-oil producer Felda Global plans to raise $3.2 billion this month in what's likely to be this year's second-biggest IPO. Leslie Josephs reports on Markets Hub. Photo: Reuters.

Everyone's heard about this year's biggest initial public offering, Facebook Inc. FB +0.99% Fewer people have heard of the IPO that's likely to be the world's second-largest this year: a $3.2 billion deal involving a Malaysian government-owned palm-oil business.

The listing of Felda Global Ventures Holdings Bhd. aims to create a new global powerhouse in the lucrative business of palm oil, an ingredient in a wide range of goods, including lipstick, potato chips and biodiesel fuel. Palm-oil demand rose an average of 7.5% a year between 1991 and 2011, according to consulting firm Frost & Sullivan, and is expected to keep on climbing as incomes rise in places like China and demand for alternative fuels increases.

The deal, which is expected to price Wednesday, also could help put Malaysia more firmly on the global investment map as the Southeast Asian country tries to liberalize its economy to compete more effectively with China and other neighbors. Malaysia once was the world's biggest palm-oil producer, but it lost that title in recent years as Indonesia and parts of Africa and Latin America expanded plantations. Malaysian leaders hope a successful listing for Felda would help revitalize its operations and fund expansion of what is already the world's third-largest palm-oil company in terms of acreage, behind Malaysia's Sime Darby Bhd., 4197.KU 0.00% and Indonesia's Golden Agri-Resources Ltd.

Felda said its net rose 1.1% last year to 942.18 million ringgit ($295.8 million) as revenue increased 29% to 7.47 billion ringgit.

Demand is more than several times what is being sold, with the bulk of the offers at the top end of the price range of four ringgit to 4.65 ringgit ($1.26 to $1.46) a share, people familiar with the situation said. If an overallotment option is exercised, Felda could raise as much as $3.4 billion for the government, which would hold 37% of the plantation operator after the planned June 28 listing on the Malaysian Stock Exchange.

Felda IPO Attracts $15 billion in Orders
The outlook for Big Palm Oil and Felda is far from certain, though. Palm oil faces attacks from environmentalists who believe production of the commodity contributes to deforestation. Nestlé SA NESN.VX +0.09% and Unilever UL +0.96% —which use palm oil for Kit Kat candy bars, Dove soap and other products—have been the target of intense campaigns from activists to stop buying the oil.

Palm-oil prices have also been falling lately, largely because of slowing economic growth in China and worries about Europe's debt woes. The Malaysian board spot price is around 3,000 ringgit a ton, down from 3,500 ringgit at the start of the year, though many experts remain bullish long term.

Felda has issues of its own, including a history of lower yields than many of its competitors. Its trees are older than the industry average, which contributes to lower yields. The average age of Felda's plantations is around 20 years, compared with 12 for Golden Agri-Resources.

"Obviously, there is a lot of excitement because it's considered a biggie, and the government has been talking about the IPO," said Choo Swee Kee, chief investment officer at asset-management firm TA Investment Management Bhd. He said that with the high price 15 times projected 2012 earnings, Felda is cheaper than Sime Darby's 18 times. "But if you look closer, there is some concern especially that a huge percentage of the trees is past prime, which may affect short-term growth. Productivity is also lower than the big boys."

Some critics have questioned whether some of the money Felda is raising is an effort to win farmers' votes in Malaysia, which is gearing up for a national election by next spring. Just before Felda began taking orders from international investors in recent weeks, Malaysian Prime Minister Najib Razak said Felda farmers—roughly 120,000 households—would get a cash windfall amounting to 17 times their monthly minimum wage. Staff at Felda and its parent body, Malaysia's Federal Land Development Authority, are set to get salary increases and bonuses.

Enlarge Image

"I think Najib is trying to create a feel-good factor that he is delivering, he is handing out cash, to time it with the election," said Rafizi Ramli, a strategy director for the opposition Parti Keadilan Rakyat, or People's Justice Party, in Malaysia. As the company puts money into new trees and waits for them to mature, "the share price will go down, there will be quite a big paper loss," especially if commodity prices fall, he said.

Government officials said winning votes wasn't part of the strategy. The listing is part of an "ongoing divestment of state-owned assets" and will "increase transparency and further improve corporate governance within the company and enhance the lives" of farmers, a government spokesman said in a written statement. Felda executives didn't respond to a request for comment.

Felda has attracted $1 billion in cornerstone investing pledges from 12 parties, including the Qatar Investment Authority, Hong Kong insurance company AIA Group Ltd., 1299.HK -0.39% and four state-run funds. The cornerstone investors promised to hold their shares for six months after the listing to assuage other investors concerned that the shares would fall immediately after the IPO. One cornerstone investor said that beyond being a must-have for any commodities funds or funds betting on the region's growth, his firm liked hedges against inflation, such as agricultural commodities like palm oil.

Other investors like palm-oil companies because they can generate lots of cash. Some palm-oil players have used that money to diversify into real estate. Sime Darby is teaming up with property company SP Setia Bhd. 8664.KU 0.00% to acquire and redevelop London's Battersea Power Station for £400 million, or around $620 million. The iconic station was closed in the 1980s but became famous after being featured on Pink Floyd album covers.

Created in the 1950s as part of a movement that gave farmers their own plantations, the Federal Land Development Authority has played a central role in Malaysia's economy and helped reduce rural poverty. Felda was established in 2007 to be the agency's commercial arm, including making investments overseas.

Felda now has 350,000 hectares (865,000 acres) of plantation under management. The company also is involved in milling, refining and marketing palm fruits from 500,000 hectares (1.25 million acres) owned by small-scale Malaysian farmers.

One idea behind the IPO is to raise cash to help Felda invest in fertilizer and irrigation to boost production, as well as to plant new trees. The offering also could give Felda management money to expand elsewhere, since most of the available land for palm oil in Malaysia is used.

—Celine Fernandez in Kuala Lumpur contributed to this article.
Write to Nisha Gopalan at and Jason Ng at

A version of this article appeared June 12, 2012, on page B1 in the U.S. edition of The Wall Street Journal, with the headline: The World's Next Big IPO.

2buki - Can GoodHope Asia Holdings (BUKI & CARS subsidiary) become a future Felda ?  Empty BUKI/CARS - In the big leagues ?? on Sat Jun 16, 2012 2:21 pm


Stock Trader
The world's second largest IPO - from a Malaysian palm oil company !? Surely that can't be right ?! I have said before on this forum that I am a fan of the Carsons group. However, though Cars/Buki may be big fish on the CSE, they can hardly be compared with this Malaysian govt. owned giant ! From what I recall, Carsons have less than a tenth of the 350,000 Hectares that Felda has according to this article.

Would anyone care to comment?

The Alchemist

Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
There is now a paradigm shift in how we should view & value the BUKI / CARS Group. Last week, Felda, a state run Malaysian Palm Oil Company IPO became the 2nd largest IPO in the world for 2012 after Facebook. The size of the IPO would put it on the list of the top 25 largest U.S. IPO’S of all time ! It was oversubscribed 29 times with some of the big sovereign funds like Khazanah, Temasek and Qatari Govt Fund participating. The IPO valued Felda at USD 5.3 Billion and 17 times trailing earnings. Felda owns 350,000 hectares land and made USD 295 Million dollars NPAT for year ending Dec 2011.

GoodHope Asia Holdings, a subsidiary of Buki & Carsons in which they each own 63-65 % directly and indirectly due to cross holding, made USD 60 million FY2011/2012.. So GoodHope Asia is currently one fifth Felda’s size in profitability.

GoodHope Asia's land profile as per recent and past Annual Reports is as folls :

Fully mature (10-12 years) – 20,000 hectares
Mature / Immature (2-6 years) - 44,000 hectares
Developed / Developing - 53,000 hectares
Concessions / Land bank - 40,000 hectares
Ultimate Stated target = 250,000 hectares

So Land profile wise, they are currently one third Felda’s size.

From the above article, we can surmise that Felda has an aging population of trees over 20 years, still the IPO at 17 times earnings was oversubscribed 29 times. GoodHope Asia is a young plantation by comparison. Last year, the PT Indomas estate cluster of approx 20,000 hectares made USD 47 Mill NPAT ( the yield was 120,000 tons CPO and 35,000 tons more expensive KPO or approx average 7.5 tons per hectare). This is at peak maturity of 10-12 years and high yield will continue for 5-6 years.
The balance 44,000 hectares mature / immature may start rapidly increasing yields from now on. The further 53,000 hectares developed / developing may start bearing fruits in 3-4 years. Just FYI, in the palm oil life cycle, once you plant a tree, in 30 months you get the first FFB - Fresh Fruit Bunches. yield increases slowly from 1-5 tons per hectare until 6-7 years when you get approx 5 tons / hectare. From year 6-10 it increases to 5-8 tons per hectare upto year 16-17. Then gradual decline until year 25 when its time to replant.
GoodHope Asia last FY profit came from 207,000 tons CPO/ KPO. if you do the math carefully and depending on CPO prices, you will realize the value proposition vis a vis being at least half a Felda is achievable in the not to distant future.

A word about the ultimate parent BUKI. From the Annual Report FY 2011/2012, EBITDA (cash generation) is 190 rupees per share so trading well under 4 times EBITDA per share. In comparison JKH EBITDA was Rs 15 per share so JKH trading at 12 times EBITDA per Share. If you consider Earnings Per Share, although reported earnings EPS was RS 41, they have not considered Rs 17 per share gain in disposal of non-current assets and further Rs 38 per share gain in Fair Value of Biological assets page 197 pt j in FY 2011.2012 Annual Report. If you add it all up, EPS is Rs 96 per share.
Interestingly, Hayleys reported EPS 33 Per share which included extra ordinary one off income of Rs 25 per share and thus recurring income EPS should have been only Rs 8.

Buki / Cars Group also spent USD 100 Mill Capex during FY 2011/2012 aggressively developing mainly their Palm oil plantation assets so CPO output will increase dramatically in the future,

It’s just a matter of time before GoodHope Asia becomes another Felda which will be the ultimate end game for the value unlock of the entire BUKI, CARS, GUAR and CINV group of shares.

Disclaimer – This is not meant as a promotion or recommendation for any of the securities listed above. Meant only to serve as an eye opener to future possibilities.


The number crunching is a bit over my head, but is this for real ? It seems huge and a bit hard to believe. No offense to you Alch.

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