Negative milling margins weigh on FGV


FGV reduced its guidance for 2021F FFB output growth to 2%-4% from 3%-5% to reflect worker shortages and impact from MCO 3.0.

KUALA LUMPUR: FGV Holdings Bhd’s weaker performance in the first quarter ended March 31, 2021 was due to RM65mil losses suffered from the processing of external crops in contrast with the profit of RM48mil a year ago, a research house said.

CGS-CIMB Equities Research said the RM65mil losses were due to FGV's inability to fully hedge its crude palm oil (CPO) production from the mills. The processing of external crops formed 70% of the total fresh fruit bunces (FFB) processed.

“FGV indicated that in 1Q21, its FFB purchase price for third-party fruits was based on an average CPO price of RM4,213 per tonne, while the average selling price (ASP) achieved for the CPO sold was only RM3,853 per tonne, causing the group to book a negative milling margin of RM128 per tonne from processing external crops, ” it said.

On Friday, FGV reported a core net profit -- excluding fair value changes in land lease agreement (LLA) and cash LLA payments -- of RM4m in 1Q21, a significant drop from RM60mil core net profit in 4Q20.

Although 1Q21 core net profit formed only 2% of CGS-CIMB Research and 1% of consensus full-year forecasts, the research house deemed it in line as higher CPO price achieved for its upstream division could offset the weaker milling contribution in subsequent quarters.

FGV has hedged forward 20% of its production at high CPO prices (estimated at RM3,500 to RM4,000 a tonne).

The plantation group reported a net loss of RM35m in 1Q21 due to negative fair value changes in the LLA of RM144m as the group raised the CPO price assumptions for 2021 when determining the LLA fair value.

FGV’s plantation profit before tax or PBT (excluding FV changes in LLA) was RM93mil in 1Q21 against a loss of RM90mil in 1Q20 but below 4Q20’s PBT of RM177mil.

“The better year-on-year performance was due mainly to higher average CPO price achieved (+18% year-on-year to RM3,172 per tonne) for its plantation operations.

“Its sugar division, MSM posted stronger YoY earnings due to stronger export volumes and higher export premium which offset lower domestic sales.

CGS-CIMB Research said during an analysts briefing, FGV reduced its guidance for 2021F FFB output growth to 2%-4% from 3%-5% to reflect worker shortages and impact from MCO 3.0.

FGV maintained its CPO production cost target of c.RM1,500-1,600 per tonne for FY21F.

“FGV said its workforce currently stands at 75% of total requirement, a drop from 83% as at end-4Q20 and 90% as at end-3Q20, which could affect its productivity. Reiterate Hold with unchanged TP of RM1.30 We maintain our earnings forecasts.

“We also retain our hold rating and TP of RM1.30 for FGV, based on the previous mandatory takeover offer price from Federal Land Development Authority (Felda).

“The odds of delisting remain high as Felda has stated it does not intend to maintain the listing status of FGV. Share price could be supported by potential privatisation offer and 3% yield, ” it said.

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