The company expects a flattish FFB production in the financial year 2023, which compares to its earlier output growth guidance of 5% to 8%.
PETALING JAYA: FGV Holdings Bhd
’s earnings forecast has been downgraded sharply, soon after the oil palm planter significantly lowered its fresh fruit bunch (FFB) guidance for this year.
The company only expects a flattish FFB production in the financial year 2023 (FY23), as compared to its earlier output growth guidance of 5% to 8%.
Post-results briefing with FGV’s management, Hong Leong Investment Bank (HLIB) Research slashed its earnings estimates by 23.1%, 55.4% and 51.5% for FY23, FY24 and FY25, respectively.
This was mainly to account for lower FFB yield and milling margin as well as higher ex-mill production cost assumptions.
FGV’s management has raised the ex-mill crude palm oil (CPO) production cost forecast to between RM2,700 and RM2,800 per tonne for FY23, following the expected drop in FFB output.
Earlier, the ex-mill CPO production cost was guided at RM2,400 to RM2,500 per tonne.
In the first half of FY23 (1H23), FGV’s results swung to a core net loss of RM34.4mil, from a core net profit of RM795.3mil in 1H22.
The poor performance was caused by significantly lower earnings contribution from the plantation sector, resulting from sharply lower realised palm product prices and higher CPO production cost.
This was, however, partly mitigated by improved earnings contribution from the logistic segment and narrower losses at the sugar segment.
In the first month of 2023, FGV’s FFB output declined by 9.7% to 1.91 million tonnes, dragged mainly by adverse weather conditions, particularly in Peninsular Malaysia, and lower bunch weight arising from lagged impact from lower fertiliser application.
Labour shortages and the movement control order in 2020 and 2021 caused the lower fertiliser application.
“Despite its anticipation of a sequential improvement in FFB output in the coming months (tracking the normal seasonal cropping pattern), the management believes that FFB output growth will likely come in flattish for FY23, given the weak output trend registered in 1H23.
“Besides, we understand that productivity of new workers remains low although on an improving trend and it will take several months before reaching the optimum level,” stated HLIB Research.
It also said FGV’s labour shortfall increased to 13% in the second quarter of 2023 (2Q23) from 11% in 1Q23 due to workers’ abscondment and repatriation.
Nevertheless, the research house noted that FGV’s management expects the labour shortfall to be fully resolved by end-2023.
Meanwhile, HLIB Research pointed out that FGV has paid the first and second tranche of recruitment fees to its current and former migrant workers, involving 19,763 workers with a total amount of RM51mil, in March and June.
“We understand that the third tranche, involving RM20mil to RM21mil, will be paid sometime in September,” it added.
Despite the sharp earnings revision for FGV, HLIB Research has maintained its “hold” call on the planter. The target price remained unchanged at RM1.51 per share.
