FGV’s withdrawal of RSPO cert a bad sign — Analysts

KUCHING: Felda Global Ventures Holdings Bhd (FGV) yesterday confirmed the withdrawal its Roundable on Sustainable Palm Oil (RSPO) certificates for the 58 palm oil mills within the group in Malaysia effective yesterday.

The group in a statement to Bursa Malaysia said it remains a member of the RSPO and continues its commitment to RSPO-P&C.

It also added that the exercise will not affect Felda Group’s RSPO Supply Chain Certification System (SCCS) certificate of kernel crushing plants and downstream refineries.

“Felda Group is currently addressing all sustainability issues along the supply chain,” it added. “This exercise allows a more inclusive certification between commercially managed plantations by FGV and Felda smallholders.”

Researchers at Public Investment Bank Bhd (PublicInvest Research) believed the request for withdrawal of RSPO certificates could relate to peat soil land in Sarawak, which makes up 60 per cent of the group’s plantation area.

“Based on FY15 annual report, it has about 30,668 hectares (ha) in Sarawak,” it analysed in its report yesterday. “Looking at its plantation profile, FGV has a landbank of around 431,622ha, which includes 353,260ha under the land lease agreement with Felda.

“About two thirds of its fresh fruit bunch is sourced from Felda smallholders, who own 475,000 ha of land as well as third party purchase, which the remainder comes from its own plantation land.”

The withdrawal of RSPO certificates could potentially hit the group’s earnings, PublicInvest Research said, as it will not be able to sell its CPO products with a RSPO premium.

In addition, its downstream sales could also be affected as its contracts with multi-national companies could face termination risk.

On the positive side, its downstream‘s earnings only made up 2.3 per cent of the group’s bottomline in FY15, which is relatively small.

“Pending the official announcement and guidance from the management, we maintain our underperform call on the company as we see further downside risk due to this negative news.”

FGV is the second big-cap Malaysian plantation company being hit by RSPO issue following the suspension of IOI Corp’s RSPO membership.

To note, the Felda Group was a founding member of the RSPO. It became the world’s first smallholder organisation to achieve RSPO certification back in 2010.

“To further strengthen our commitment towards sustainability, we have revised our Sustainability Policies to include new RSPO requirements pertaining to the ban on planting of oil palm in high carbon stock and high conservation value areas,’ it outlined in its Annual Report 2015.

“By the end of the financial year 2015, 56 of our mill complexes had attained RSPO certification, while 10 of them retained International Sustainability and Carbon Certification (ISCC) re-certification. The Palm Upstream Cluster expects to have its 71 mills fully audited by 2016, ahead of the 2017 target.

“We produced 1.47 million MT of certified palm oil this year, 52 per cent higher than in 2014.”

 

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