KUCHING: Felda Global Ventures Holdings Bhd (FGV) expects to take three years to recertify its 58 palm oil mills, which will include some structural changes in its Roundtable on Sustainable Palm Oil (RSPO) certification approach and also certain policies.
Public Investment Bank Bhd (PublicInvest Research) said the RSPO certification withdrawal will only affect its upstream mills while the RSPO supply chain certification system of its kernel crushing plants and downstream refineries will not be affected.
“Based on their estimates, the changes will affect less than one per cent of FGV’s revenue annually which could result in a loss between RM40 million to RM60 million,” it estimated in a note. “Though it looks relatively small for the topline, it could turn out to a big impact on its bottomline as its earnings base is small.”
TA Securities Holdings Bhd was equally surprised by the move, and believe the absence of CSPO premium sales going forward, will directly impact FGV’s bottomline.
According to RSPO, FGV is one of the biggest suppliers of certified sustainable palm oil (CSPO) and has about 591,000ha of certified area and CSPO production capacity of 1.8 million tonnes per annum.
“We expect the loss of CSPO premium will not impact the downstream operation as the products are mostly sold locally. However, the export of CPO to overseas countries will face the negative impact.”
It is believed that the withdrawal of RSPO certifications was mainly due to FGV’s subsidiaries clearing 880 hectares of identified High Conservation Value peatlands located in Sarawak.
Maybank Investment Bank Bhd (Maybank IB Research) said these moves were likely proactive measure to address fresh allegations.
“Few details were provided in the Bursa announcement, but we suspect the voluntary suspension could be due to an ongoing RSPO enquiry on Felda’s foreign labour practices following Wall Street Journal’s report in 2015, and fresh allegations of unverified “non-sustainable” practices by Chain Reaction Research.
“Felda has close to 600,000ha of certified area with about 1.8 million metric tonnes per annum of CSPO certificates, but largely in the Mass Balance category which generates the lowest CSPO premium,” it said in a note yesterday.
On a more postiive note, MIDF Amanah Investment Bank Bhd (MIDF Research) said this development showed FGV’s keenness to address sustainability issues in the supply chain.
“We gather that FGV withdrawal is voluntary and it is aimed to address the sustainability issues along the supply chain. By doing this, FGV plans for more inclusive certification between commercially managed plantations by FGV and Felda smallholders in the future,” it highlighted.
“The negative news should be neutralised by FGV returning to profitability. Despite the lower earnings forecasts due to this news, FGV is still expected to return to profitability in financial year 2016 (FY16).
“Key reasons for the turnaround are better average CPO price of RM2,450 per metric tonne and our belief that FGV’s trading, manufacturing and logistics division should return to slight profitability this year.”