KUCHING: A weaker demand outlook is expected for FGV Holdings Bhd (FGV) in the short to medium term, on the back of the rising Covid-19 outbreak and geopolitical uncertainties.
The research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) continued to be encouraged by the progress of FGV’s transformation plan to improve operational efficiency which is well on-track as evidenced from the group’s positive operational statistics.
MIDF Research also opined that the elevated crude palm oil (CPO) price in financial year 2020 (FY20) coupled with a healthy fresh fruit bunch (FFB) production growth to generate a better financial performance for the group in coming quarters.
“The favourable sugar market environment should be able to help MSM to further reduce its losses in FY20, which bode well for FGV as well,” the research arm said.
Nonetheless, MIDF Research remained concerned of the potentially weaker demand and pricing outlook arising from the extended coronavirus outbreak and ongoing trade spat with India.
It noted that the pricing differentials between Malaysian and Indonesian palm oil has also been minimal, indicating partial downward pressure on CPO price due to India’s refined palm oil trade diversion to Indonesia.
“In view of the rising Covid-19 outbreak and a potentially protracted trade spat with India, we believe the export demand growth for Malaysian palm oil and other commodities within FGV could be muted due to possible demand weakness coming from the two main markets.
“Moving forward, the limited business activities and logistical constraints might also have adverse impacts on the FFB quality and sales volume through delayed shipments.
“As a result, we postulate that these developments might lead to partial downward pressure on the CPO price in the near time which could dampen the group’s earnings growth.”
Meanwhile, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) highlighted that management cautions of the adverse dry weather impact on the first quarter of FY20 (1QFY20) FFB output.
“As we understand, its FFB output for January-February 2020 was affected. However, FFB for March could see an increase to partially offset the lower January-February period,” Kenanga Research said.
“Regardless, the group is still more sensitive to CPO price and given higher average CPO price, we expect a sequential improvement in 1QFY20.”.