FELDA Old trees - a serious legacy problem that is being fixed.

Friday, 23 February 2018

FELDA Old trees - a serious legacy problem that is being fixed.

Tun Mahathir stopped all new FELDA settlers in 1990 and stopped yearly govt allocations to FELDA in 1996 - ordering FELDA to source for its own funds.

Mahathir was more concerned about Proton, Sepang airport, KLCC, industrialization, KLCC etc.. Agriculture and FELDA was not important to him.

As a result, FELDA was deprived of replanting funds and the trees got old. Yields started falling in 2008 and 2009.

If urgent action was not taken then there may be no more FELDA in 10 years or 20 years time as all the trees would be too old to bear fruit.

As FELDA no longer enjoys govt allocations, a decision was then taken to list FGV as a separate unit to take advantage of high palm oil prices and high palm stock valuations at that time.

Hence the second largest listing in the world then raised RM6 billion and allowed FELDA to realize a big profit at that time - providing much needed funds for not only big-scale replanting but for settlers welfare as well as to expand Felda's land bank in Malaysia.

Unfortunately after that, palm oil prices had dropped while the El-Nino caused production to fall which badly affected the FGV share price.

Felda itself remained strong and have been providing bonuses, funds for replanting and funds for housing and welfare for settlers. Felda FC and their stadium is one example of it.

Settlers were one of the biggest beneficiary of the listing of Felda Global Ventures (FGV). Not only was there a big RM15k bonus per household upon listing but billions in free shares were given to the koperasi. Regular payments were also made. 

Soft loans were also provided to settlers to buy FGV shares and when FGV shares dropped in price, FELDA also made sure that the cost of FGV shares are halved to limit any possible losses to the settlers.

FGV itself has never once experienced a loss in any financial year since listing and have continued to pay dividends. This year, with the new management and recovery in production as well as better prices, FGV's profit is much stronger.

FELDA is a govt agency and its job is to take care of settlers. Much of the profits gained by FELDA when FGV was listed has been used back on the settlers - causing FELDA to experience losses in the years after the listing. FELDA made bumper profits during the listing. There is nothing wrong in spending most of these profits on settlers.

FELDA has assets of RM27 billion and FGV has sales that now approach RM20 billion per year. FELDA is still very strong and will enjoy solid govt support. There is nothing to worry about FELDA.

The Opposition will spread all sorts of false news and falsehoods against FELDA as if FELDA is in big trouble because they know that FELDA vote bank is important to them.

For example, they claim the RM270mil Semarak land is missing. It is not missing. The land is there and efforts are being made to transfer the ownership back to FELDA. 

And how can a Rm270mil land cause FELDA to bankrupt when FELDA's assets are more than RM27 billion - not even 1%.

Also, the share price of FGV has been made an issue by the opposition to suggest that the settlers have lost money. This is a lie. As explained above, settlers are a net beneficiary of the FGV listing and has not lost money. They have benefited. 

Yes, there were some impropriety found in FIC but this is now being corrected while any losses will be recovered. Those responsible will face the law.

The aggressive and expensive replanting of trees made possible by the funds raised from the listing of FGV is now bearing fruit as reported by The Star based on RHB Research's findings.
  

HAVING a high percentage of old oil palm trees has long been a challenge for diversified planter Felda Global Ventures Holdings Bhd (FGV). 

When FGV was listed in 2012, almost 50% of its palm trees were 21 years old and above – an alarming figure which analysts often highlight to be a big drag on the yield performance of the group’s estates. 

However, fast forward to 2018, this long-standing issue is about to change for the better.
Thanks to the aggressive replanting between 13,000 ha and 15,000 ha annually by the group in the past six years, the rejuvenation process of FGV’s old age palm trees is starting to bear fruit. 

FGV is expected to slash the percentage of old trees (21 years and above) to 33% this year and is set to reduce it further to about 25% by 2020. 

More importantly, the percentage of young and prime age trees will increase to about 47% this year from 30% in 2012. 

By 2020, it is expected to rise to 54%. 

The average tree age in FGV’s estates will also come down to 14 years in 2018 from 17.5 years back in 2012. It will moderate further to 12.8 years in 2020 and down to 12 years by 2022.

FGV is now bouncing back strongly and have tripled their profits for the year 2017.. FGV's net profit for the financial year ending Dec 31, 2017, was RM208.04 million up 213 percent from the RM66.45 million recorded the previous year.

RHB Research calls FGV a turnaround story and has forecast even stronger growth for FGV in the years ahead.

Turnaround story
RHB Research in its latest report says: “We believe FGV’s earnings are set to turn around more solidly from financial year ending Dec 31, 2018 onwards.

“Investor sentiment on the stock may change once FGV shows its improved age profile from land bank rejuvenation, which would lead to improved earnings; as well as starts to pull through with its promises of non-core asset disposals and cost-saving initiatives.

“We believe these benefits outweigh the risks, as the market is still unconvinced of FGV’s turnaround story.”

Hence, RHB Research is raising its FGV earnings estimates by 6% to 9% for FY2017-2019, to take into account the impact of the sale of palm kernel shells and other waste products, as well as to impute slightly higher losses at its downstream division.

“We note that our forecasts currently assume a 55% year-on-year (y-o-y) growth in earnings in FY2018, followed by a 22% y-o-y growth in FY2019.

FGV has gone through a period of bad times since listing but the continued focus of improving its operational efficiency and the expensive but very necessary investment in aggressive replanting is showing results.

Gven the situation of the 2007-2009 years when yields started to drop due to old trees, Felda and FGV had not done what it did then after Najib became Prime Minister, FELDA could have ceased to exist in less than a decade.

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An except from my blog post from 1 year ago follows:

A legacy problem that needed urgent correction  

Historical statistics released by the USA indicate that Malaysian palm oil yields have typically appreciated over time, with the strongest period of growth occurring between 1998-2008 when yields increased by approximately 4%annually. 

Malaysian Palm Oil yield started to drop 

As you see in the graph, in 2009 an unexpected break in the long-term national growth pattern occurred where palm oil yields started dropping.

Oil palm is a perennial crop, with trees potentially producing economically viable volumes of fresh fruit bunches (FFB) over a lifespan of 30 years or so. Peak crop yields are achieved from the age of 9-18, and gradually decline thereafter.

In 2009, it was estimated that 65% of Malaysia’s total oil palm area was between the ages of 9-28+, while 26% was at least 20-28+ years old.

Due to neglect from a past prime minister more interested in monolith monuments and building cars, FELDA's problem was worse than the industry - with more than 50% of their palm oil trees then older than 21 years old. 

Age profile of FGV's palm oil trees.

This means that more than 50% of trees would no longer be economically viable 9 years later by the year 2018 - potentially affecting the livelihoods of hundreds of thousands of people.

So, if you were a responsible Prime Minister and the price of palm oil was high then, what would you do?

You would raise as much money as you can - by listing a part of the company to raise funds or borrow when the price of palm oil is highest.

This would be used to fund a massive and costly re-planting exercise and also acquire younger plantations for Felda in order to reduce the overall age profile of your plantations.

You will also use new high yielding planting materials to boost oil yields which are capable of doubling oil yields.

Just like harm was done due to neglect of replanting by a previous Prime Minister that will be known a decade later when the trees die, good that is done by a current Prime Minister will only be known later when the new plants start producing fruit bunches in year 9.

You suffer a bit now so your future is secure rather than have no future if the previous trend persisted.

Facts , figures and history don't lie.

Posted by Lim Sian See at 19:44 

Wednesday, 11 October 2017

Is Malaysia's petrol price too cheap or too expensive?

Whenever petrol prices increases, people will inevitably grumble. It is human nature that people do not want prices to increase even though our income levels and standard of living has increased have increased over the years.

This article takes an objective view of the petrol price today (RM2.19 as at 9th October 2017) with the aim of giving the average Malaysian a fresh perspective of our petrol price.

1. Our Petrol prices have lagged inflation.

That's right, the RON95 petrol price today has failed to keep up with even our official inflation index - an index that many people perceives as too modest.

Over 36 years ago in 1981, RON92 prices were just RM0.89 per liter. If we were to use our official inflation index as defined by our Department of Statistics and calculate what RM0.89 is today, the price would be RM2.41. This is higher than today's price of RM2.19.

And even if you use the price 27 years ago in 1990 of RM1.10 per liter, the price today when you calculate to include inflation would be RM2.30. Again this is higher than today's price of RM2.19.

Even more incredibly is that global crude oil prices for 1990 was just US$25 per barrel when our exchange rate was US$1 to RM2.40 which works out to RM60.00 per barrel.

Compare this to global crude oil prices of about US$60 per barrel and exchange rate of US$1 = RM4.20 which equals to RM252.00 per barrel, which is 4 times more than the ringgit price 27 years ago.

This difference is explained when you realize that, instead of subsidizing petrol Mahathir's govt had taxed petrol at 58sen per liter for decades until this tax was abolished in 2004. 

Yes, Mahathir was collecting money from us on every liter we pumped in the entire 22 years he was Prime Minister.

As a side-note, our modern cars are heck of a lot more fuel-efficient than cars of the past. Hence, we are actually paying a lot less in real times per month for petrol when compared to the 1980s and 1990s. And plus, sometimes our petrol prices drop WAY BELOW inflation - like when it was RM1.60 per liter in the beginning of 2016.

2. Our petrol price is half of the global average price.

According to the global petrol price website which tracks fuel prices globally, as at today, 09-Oct-2017: The average price of gasoline around the world is RM4.57 - which is more than double our price of RM2.19 per liter.

 

3. We are currently 15th or 16th Cheapest in the world for Petrol.

Out of 180 countries, we are 15th or 16th cheapest for petrol prices right now. All those countries ahead of us are mostly major oil producers with production and exports many folds what Malaysia produces.

   

And of course other than Brunei (which has no democracy but produces 40 times more oil per capita than Malaysia), Malaysia has the cheapest petrol in ASEAN.

But look at the rankings above, which country do you want Malaysia's petrol price to be cheaper than before you will be happy?

4. Petrol has become way more affordable for the average Malaysian

In 1993, RON92 (not even RON95) was RM1.06 per liter.

Data from the Department of Statistics shows that the Median household income for Malaysians during that year was RM1,077 per month for the median Malaysian family.

This means that if you spent your entire monthly income on petrol, the median Malaysian family could only buy 1016 litres of RON92 per month then.

By the year 2016, the median Malaysian household income has grown to RM5,228 per month.

Even at a price of RM2.31 per liter, the median Malaysian household can now buy 2,263 liters of petrol per month - meaning that petrol today is actually 50% more affordable compared to in 1993 under Mahathir when you take the increase in income into consideration.

5. But wait.... isn't Malaysia a major oil producer/exporter and can afford even cheaper petrol for the rakyat?

Well, things change bro.

Many of us still have this impression from our geography text-books during schooling time but the reality is that Malaysia has changed.

Firstly, have a look at our oil production figures over the years. Notice the trend.

Yes, that's right. Due to depletion of oil fields - especially the cheapest oil fields to extract that is close to land, Malaysia no longer produces as much oil as it did in the past. 

Mahathir essentially pumped us dry then without replacing many of the oil fields.

Now, have a look at the number of cars sold per year data from the website of the Malaysian Automotive Association (MAA) which tracks official car sales data.

As you can see, the number of vehicles that Malaysians own have exploded. In fact,Malaysia have one of the highest car ownership rates in the world.

Cars and trucks use petrol. The more cars and trucks, the more petrol we use - hence our consumption of oil has been steadily increasing since we last picked up our geography books.

Which leads us to this table.

You can see for yourself how the blue bars (our oil production) has dropped while the yellow bars (our oil consumption) keep increasing year after year.

And when the yellow bar is now higher than the blue bar means that Malaysia is now a net importer of crude oil.

Don't say our government didn't tell you or nobody told you this ah. Gohmen did tell you exactly this two years ago but you don't want to read.

In fact, in the year 2002, both Mahathir and Muhyiddin said that our cheap petrol prices were unsustainable as Malaysia's oil production is being overtaken by our own consumption - hence petrol prices needed to be raised.

But don't risau too much. Malaysia is still a very big net exporter of natural gas. Unfortunately, we don't pump natural gas into our cars - unless of course you convert your car to use LPG, which is cheaper than petrol but has limited petrol stations availability.

So, there you have it!

Malaysia's petrol price is not too expensive in the scheme of things and considering history.

In fact, Malaysia really has no right to be among the top 15th cheapest petrol in the world.

But we are.

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When Mahathir first became Prime Minister in 1981, the price of petrol was 89sen per liter.

In 1990, he raised it to RM1.10. 

On 20 Oct 2000, he raised it to RM1.20. And then RM1.30 on 20 Oct 2001.

He then raised it 3 more times and by the time he retired as PM, petrol price was RM1.35 per liter - 52% higher than what the price was before he became PM.

Not once did Mahathir ever reduce petrol prices in his 22 years as PM.

In the year 2002, Mahathir and Muhyiddin said that petrol subsidies were unsustainable as Malaysia's oil production is being overtaken by our own consumption - hence petrol prices needed to be raised. 
http://ww1.utusan.com.my/utusan/info.asp?y=2002&dt=0801&pub=Utusan_Malaysia&sec=Muka_Hadapan&pg=mh_01.htm

You must also remember that during the time of Mahathir, global oil prices were low and was between US$10 to US$20 per barrel while our exchange rate was USD1 to RM2.40 - as compared to US$60 per barrel now.

The difference was also because Mahathir had taxed petrol at 58sen per liter for much of his reign. 

When Najib first became Finance Minister in September 2008, petrol price was RM2.55 per liter for RON97 and RM2.40 for RON92.

Najib then introduced RON95 to replace RON92 and gradually reduced the price to RM1.80.

However, due to blanket subsidies becoming unsustainable, the petrol price was floated in Nov 2014.

After it was floated, the price had fluctuated and was as cheap as RM1.60 for many months. 

PM Najib no longer controls the petrol price as the market now determines the price. Therefore, no one, especially Pakatan politicians, ever praised Najib when the price dropped to Rm1.60 then.
(but strangely when the price increases, Najib is blamed - and not the market)

Now it has gone back up to RM2.31 yesterday due to tensions in Saudi Arabia - but it is still among the top 17 cheapest in the world.

At this RM2.31 price, it is still cheaper than the RM2.55 per liter when Najib first became Finance Minister.

You must also take note that Pakatan's alternative budget for 2018 also no longer have blanket fuel subsidies but will only give a 20sen reduction to owners of motorcycles and cars below 1,000cc.

 
Even the opposition now knows that blanket subsidies for petrol does not benefit the country.

Posted by Lim Sian See at 05:43