This is the worst-case scenario envisaged by BIMB Securities in its latest report yesterday.
On Sept 30, the US CBP put a withhold release order (WRO) on palm oil and palm oil products by FGV’s subsidiaries and joint-ventures (JV), following the indication on the use of forced labour in its plantations.
BIMB Securities, which attended a briefing by FGV last Friday, said the company’s management team had described the impact from the US CBP detention order as “minimal”.
This is given that FGV does not have direct crude palm oil (CPO) bulk sales to the US.
Year-to-date, the FGV Group has exported about 40 tonnes of shortening, valued at US$27,000 to the US.
In another worst-case scenario, FGV would have to re-route its palm oil products to other export markets if its JV partner, Procter & Gamble, decides to restrain their global ties, added the research unit.
For now, BIMB Securities is still maintaining its earnings forecast for FGV with an unchanged share price target of RM1.04.
“We also expect the group’s palm oil products segment in the coming quarters to sustain, given that the current prices are trading above the 2019 price levels, while production is in its peak productive quarters,” added the research unit.
The FGV management had pointed out that sales in the fourth quarter were already locked and this will remain intact.
During the briefing last Friday, FGV maintained that all the issues raised have been the subject of public disclosure since 2015, and the company had taken steps to correct the situation.
Based on the process done by other companies which have encountered the same issue, FGV will probably take several months to conclude.
This will also depend on the independent audit firm, which will be appointed to audit FGV’s operations, especially on its labour practices.
FGV is in communication with the US-based legal counsel, the Malaysian Embassy, the Foreign Affairs Ministry and the Human Resources Ministry to solve these issues.
It will also continue to engage with the CBP, in which FGV will submit the Fair Labour Association’s (LA) assessment report together with other additional supporting evidence.
So far, FGV has submitted two petitions to the CBP, in June and September last year, with regards to the labour practices and improvements undertaken by the group. The only response received was the recent WRO, which indicated that the evidence given was insufficient.
According to FGV, various efforts were taken to honour its commitment to respect the human rights and uphold labour standards.
This includes strengthening the group’s guidelines and procedures for responsible recruitment of foreign workers. It also established four one-stop centres in Malaysia and in source-countries, namely India and Indonesia.
FGV has also pioneered the implementation of electronic wallet cashless payroll system for plantation workers to allow workers to manage their finances. In fulfilling the workers’ rights to adequate housing, FGV has invested about RM350mil to upgrade housing.
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