FGV sees losses in 1Q, expects better results in 2H
KUCHING: FGV Holdings Bhd (FGV) reported a core net loss of RM159.7 million for its first quarter of financial year 2020 (1QFY20) compared with a core net profit of RM1.4 million the year before, dragged by losses in its plantation and sugar units.
The team at AmInvestment Bank Bhd (AmInvestment Bank) is now forecasting that FGV would record a net loss of RM49.6 million against its original expectations of a net profit of RM50.3 million, due to weaker fresh fruit bunch (FFB) production growth and a larger net loss in the sugar division.
“FGV’s plantation division (upstream and downstream) sank into the red in 1QFY20 due to a 32.6 per cent year on year (yo-y) drop in FFB production,” it said in a review yesterday.
“Higher crude palm oil (CPO) price could not compensate for the negative impact of the sharp drop in FFB output in 1QFY20. On a quarterly basis, FGV’s FFB output shrank by 29 per cent in 1QFY20.”
The plantation division recorded a pre-tax loss of RM152.1 million in 1QFY20 versus a pretax profit of RM39.8 million in 1QFY19. The research house noted that average CPO price increased by 34.4 per cent to RM2,669 per tonne in 1QFY20 from RM1,986 in 1QFY19.
Due to the group’s sizeable operations in Sabah, AmInvestment Bank believed that FGV was more affected than its peers by the lagged impact
FGV’s plantation division (upstream and downstream) sank into the red in 1QFY20 due to a 32.6 per cent year on year (y-o-y) drop in FFB production. AmInvestment Bank
of the drought and haze, which took place in the third quarter last year.
“FGV’s 1QFY20 FFB yield was also affected by lower fertiliser application in FY19,” it continued, noting that FGV only applied 65 per cent of its full year fertiliser requirements in FY19.
“FGV’s CPO production cost (ex-mill and land lease changes) surged to RM2,177 per tonne in 1QFY20 from RM1,375 per tonne in 1QFY19.
“The y-o-y increase in production cost per tonne in 1QFY20 was due to higher application of fertiliser, a fall in the production volume of CPO and higher cost of wages.”
Nonetheless, MIDF Amanah Investment Bank Bhd ( MIDF Research) anticipated FGV to have brighter prospects in the second half of FY20, in view of the anticipated better FFB yield and CPO price with potential easing of lockdowns globally.
“In the second half of the year, we are of the view that the group would be able to possibly make a turnaround,” it said in a separate report.
“Note that the group has already secured CPO sales for June and July 2020 delivery to India as well as penetrating into the populous country’s food products sector through partnership with a local company to strengthen its downstream food fast-moving consumer goods business.
“In addition, the higher average selling price (ASP) of refined sugar and potential higher sales volume at its sugar segment would support the group’s earnings momentum as well. Nonetheless, we believe that the turnaround could be met with headwinds should there be any resurgence of Covid-19 outbreak and extended lockdowns.”
While FGV’s 1QFY20 results have been negatively impacted by its plantation segment, MIDF Research expect the group’s aggressive fertiliser application during the same period could help to improve the FFB yield going forward -- thus resulting in better CPO sales.
“Note that the general industry also experienced a decline in FFB output throughout the 1QCY20 period as caused by the adverse weather condition in 2019,” it added.
“Moving forward, we opine that the expectancy of favourable CPO price in 2HFY20 coupled with a better FFB production and a potential recovery in demand to generate a better financial performance for the group.”