KUCHING: Felda Global Ventures (FGV) is exploring the possibility of carving out its plantations business into the trust and analysts believe that the company’s net profit would drop significantly as a majority of its plantation landbank would be sold to the trust.
AmInvestment Bank Bhd’s research arm (AmInvestment Bank) noted that according to news reports, the major shareholders of FGV is exploring the possibility of carving out the plantation business from the listed arm and placing it in a trust to be owned by shareholders.
It added, the plan was to distribute the units in the trust to all shareholders of FGV. Federal Land Development Authority (Felda), which is FGV’s parent company, would be appointed as the manager of the plantation trust while minority shareholders of FGV would be given shares in the trust and earn dividends.
“Net profit of FGV would drop as more than 80 per cent of its plantation landbank would be sold to the trust.
“At the same time, it remains uncertain if the real estate investment trust (REIT) or trust would be able to generate higher returns from the same parcels of plantation landbank, which are currently under FGV,” the research team commented.
It noted that FGV’s plantation division recorded estimated core pre-tax profits of RM105.6 million in the first quarter of the financial year 2017 (1QFY17), excluding changes in land lease value, and RM294.1 million in FY16.
It believed that after carving out the plantations into the trust, FGV would be left with 55,297 hectare (ha) of landbank. It also noted that FGV leases about 362,747ha of land from Felda presently.
“We estimate that FGV sources a third of its FFB from the leased land, another third from Felda and the balance from external parties,” it added.
“In addition, it is unknown if the plantation REIT or trust would be able to match the dividend yields offered by the other listed REITs presently,” it pointed out.
AmInvestment Bank said, Al-Hadharah Boustead REIT was privatised by Boustead Holdings Bhd in 2014 while most of the property REITs in Malaysia are expected to record dividend yields of more than five per cent in FY18F.
“For shareholders’ value to increase, the REIT or plantation trust’s price earnings (PE) would have to be higher than FGV’s current PE. FGV is presently trading at FY17F PE of 77.2-folds and FY18F PE of 59.8-folds. FGV’s dividend yield is forecast at 1.4 per cent for FY18F,” it said, noting that minority shareholders of FGV would own shares in two listed units of Felda Group which are FGV and the plantation trust.
Overall, the research team maintained a ‘sell’ call on the stock.