KUALA LUMPUR: FGV Holdings BhdThe weaker performance in the first quarter ended March 31, 2021 was due to losses of RM 65 million from processing external crops, in contrast to the profit of RM 48 million a year ago, a research house said.

CGS-CIMB Equities Research said the losses of RM 65 million were due to FGV’s inability to fully cover its crude palm oil (CPO) production from the factories. The processing of external crops accounted for 70% of the total fresh fruit buns (FFB) processed.

“FGV reported that in 1Q21, its FFB purchase price for third-party fruit was based on an average CPO price of RM4,213 per tonne, while the average sale price (ASP) obtained for the CPO sold n ‘was only RM3.853 per ton, which led the group to reserve a negative milling margin of RM128 per ton for the processing of external crops, ”he said.

FGV on Friday reported basic net profit – excluding changes in fair value of the land lease agreement (LLA) and LLA cash payments – of RM 4 million in 1Q21, a significant drop from basic net profit of RM 60 million in 4Q20.

Although 1Q21’s basic net profit is only 2% of CGS-CIMB Research and 1% of consensus forecast for the full year, the research house deemed it to be in line as the higher CPO price reached for its upstream division could compensate for the lower contribution from machining in the following quarters.

FGV eventually hedged 20% of its production at high CPO prices (estimated at between RM3,500 and RM4,000 per tonne).

The plantation group reported a net loss of RM 35 million in 1Q21 due to negative fair value changes in the LLA of RM 144 million as the group raised the CPO price assumptions for 2021 when determining the fair value of the ALL.

FGV plantation profit before tax or PBT (excluding FV changes in LLA) was RM 93 million in 1Q21 compared to a loss of RM 90 million in 1Q20 but below the 4Q20 PBT of 177 million RM.

“The better year-over-year performance was mainly due to the increase in the average CPO price reached (+ 18% year-on-year to RM3,172 per tonne) for its planting operations.

“Its sugar division, MSM, posted higher annual profits due to higher export volumes and a higher export premium which offset lower domestic sales.

CGS-CIMB Research said in an analyst briefing, FGV has reduced its forecast for FFB 2021F production growth to 2% -4% from 3% -5% to reflect worker shortages and the impact of MCO 3.0.

FGV maintained its target of CPO production costs of approximately 1,500 to 1,600 rm per tonne for fiscal year 21F.

“FGV said its workforce currently represents 75% of total requirements, down 83% at the end of 4Q20 and 90% at the end of 3Q20, which could affect its productivity. Reiterate the stand with unchanged TP of RM 1.30 We stand by our earnings guidance.

“We are also maintaining our maintenance rating and our TP of RM 1.30 for FGV, based on the previous mandatory tender offer price of the Federal Land Development Authority (Felda).

“The odds of delisting remain high as Felda has stated that she does not intend to maintain FGV’s listing status. The share price could be supported by a potential privatization offer and a 3% return, ”he said.

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