OVER the last few weeks, plantation stocks have had a good run, bolstered by the strong rally in crude palm oil (CPO) prices.

       For the first time, CPO prices surpassed the all-time high of RM7,000 following news that Russia had invaded Ukraine.

       March 2022 futures contract increased RM587 to RM7,093 a tonne at close on Feb 24.

       Similarly, CPO futures contract for April 2022 also rose RM533 to RM6,786 per tonne.

       This suggests that traders have been bidding on CPO contracts as the tight supply of the commodity is likely to remain.

       Plantation stocks that were dampened by environmental, social and governance (ESG) issues also saw a rally in their share prices.

       For instance, Sime Darby Plantation Bhd’s share price rose 24.4% to RM4.78, year-to-date.Similarly, TH Plantations Bhd share price jumped 38.8% to 87.5 sen, year-to-date.

       Big planter IOI Corp Bhd share price was also up 18.5% to RM4.61 in that period.

       Meanwhile, Genting Plantations Bhd share price climbed 32.3% to RM8.87 year-to-date.

       Among the plantation stocks that also got a lift recently was FGV Holdings Bhd (FGV).

       Its share price jumped about 30% to RM1.95 year-to-date.

       However in FGV’s case, there is more going on. Its parent, Federal Land Development Authority (Felda), is still keen on taking FGV private, despite being almost one year into that effort.

       Recall that Felda first made a buyout offer for FGV back in December 2020.

       Since then, the plantation giant has only received 81% of shareholder acceptances.

       It will need to receive 90% of the shares it does not own for it to compulsorily purchase the balance.

       Considering the circumstances of not receiving acceptances from a sufficient number of shareholders at the then offer price of RM1.30, it is clear that Felda will likely have to up its offer price.

       Felda has yet to do so until today.

       What complicates the matter is that CPO prices are higher than they were a year ago, when the first offer was made.

       As such, Felda is now facing the prospect that if it were to raise the offer price, it would have to do so at a much higher price.

       Considering the CPO price craze, what could that revised offer price be?

       MIDF Research, which is keeping a “buy” call on FGV, tells StarBizWeek that minority shareholders might be seeking for a higher valuation given the current CPO price.

       “Hence, we think that the range of RM1.90 to RM2.20 can be considered as fair value.

       “Valuation-wise, FGV is trading at 22 times price-to-earnings ratio (P/E) of 2022 forecast compared with its big-cap peers’ trading range of 17 times to 25 times.

       “We ascribed a lower P/E of 22 times within its peer range to reflect the valuation drag on concerns on the group’s environmental, social and governance (ESG) issues,” explains the research house.

       MIDF Research is maintaining a “buy” call on FGV considering that the favourable CPO price would generate better financial performance of the group.

       The research house also noted that the anticipated higher average selling price of refined sugar and increase in sales volume should be able to help its FGV’s listed subsidiary MSM Malaysia Holdings Bhd achieve higher profit margins in the coming quarters. But a contrarian view is expressed by AmInvestment Bank Research that is keeping a “sell” call with a lower fair value of RM1.20 per FGV share.

       It says there are concerns that FGV would find it difficult to maintain its high profits for FY22 due to lower palm oil product prices and higher costs of production.

       “Our fair value for FGV is based on a FY23 forecast P/E of 22 times. We have used FGV’s FY23 forecast net profit to arrive at its fair value instead of FY22 forecast as the Malaysia corporate tax rate is expected to normalise to 24% in 2023 forecast. We ascribe a three- star ESG rating to FGV,” it said.

       Despite CPO prices moving up further, RHB Research believes the valuations of plantation companies would come down to even below ESG-dampened discounted levels given the ongoing Russia-Ukraine war.

       In general, most analysts have turned bearish on FGV’s stock, with three out of 10 analysts polled on Bloomberg having a “sell” call on the stock, six keeping a “hold” and one calling a “buy”.

       The consensus target price for FGV is RM1.54 or 19.4% below the stock’s current price of RM1.91 on Feb 24.

       That said, fund manager Danny Wong believes that a 10% to 20% premium to the latest FGV share price should be a “reasonable” upward revision to the offer price by Felda.

       However, he adds, that will not help the early initial public offering (IPO) investors that bought the FGV shares at a lofty price of RM4.55.

       He says an offer price at a small premium to the current FGV price should be sufficient for sellers.

       “The ESG risk is higher for plantation companies and the rally of CPO price is not sustainable in the long run,” said Wong, who is chief executive officer of Areca Capital.

       Recall that when Felda first launched the mandatory general offer for FGV last March, it did so at a price of RM1.30 per share.

       FGV’s share price was RM1.27 a piece then, so the premium of the offer was at a mere 2.36% to the market price.

       However, it is noteworthy that FGV’s share price was on a steady climb before the proposed share purchase announcement, rising from RM1.03 on Nov 2, 2020 to RM1.27, just prior to the announcement.