PETALING JAYA: Analysts are negative about the withdrawal of the Roundtable on Sustainable Palm Oil principles and criteria certificates (RSPO and P&C) of 58 palm oil mills throughout Malaysia by Felda Global Ventures Holdings Bhd (FGV) and Felda.
Although the exercise does not affect Felda Group’s RSPO Supply Chain Certification System (SCCS) certificate of its kernel crushing plants and downstream refineries, BIMB Research is of the view that there is still a potential premium sales losses from its inability to supply certified palm oil.
“The withdrawal of RSPO certification, effective yesterday, will deny FGV from gaining the RSPO premium, which is about US$25 per tonne, equivalent to RM98 per tonne,” said Public Investment Bank in a research report yesterday.
Recall that 47.4% or 1.47 million tonnes of its crude palm oil production are RSPO-certified.
According to Kenanga Research, there is an estimated bottom line impact of about RM18mil, on the assumption of Certified Sustainable Palm Oil (CSPO) premium value loss of about RM50 per tonne.
The withdrawal could dent FGV’s reputation and image as a sustainable palm oil producer.
Meanwhile, CIMB Research believed that the decision could be partly linked to the alleged breach of labour conditions, in the treatment of workers at the group’s plantations.
This had led to the suspension of FGV’s Pasoh palm oil mill, which was filed under the RSPO complaint case trackers.
A recent report by Chain Reaction Research also alleged that the group’s subsidiaries are in breach of RSPO standards as its subsidiaries cleared 2174.53 acres of high conservation value peat lands.
However, BIMB Securities is neutral on the move as FGV’s rectification plan is to re-apply the membership within three years and by then, will improve on the sustainability process.
According to the announcement, this measure would allow a more inclusive certification between commercially managed plantations by FGV and Felda smallholders.
FGV is the second significant Malaysian producer after IOI Corp to have recently ceased producing RSPO certified palm oil due to complaints by NGOs on alleged breach of RSPO-P&C.
The difference is that the RSPO certifications for the entire IOI Group were suspended, while FGV has withdrawn the RSPO certifications.
“The withdrawal of FGV’s mill certificates could also lead to the lost of high-end business, particularly in Europe or the United States. We think the same should be in store for FGV, although the earnings impact should be less severe, given its smaller revenue base from Europe and the United States, which stands at 7%, compared with IOI Corp’s revenue base from Europe and the United States at 51%,” said Kenanga Research.
Kenanga Research has reduced FGV’s FY2016 to FY2017 earnings estimates by 7% to 10% to RM210mil to RM169mil, while BIMB Securities reduced FGV’s FY2016 to FY2017 earnings by 3% to 2.8%.