KUALA LUMPUR – August 25, 2015: The worldwide decline in biodiesel demand and global growth are the main factors contributing to the weakening of crude palm oil (CPO) prices which saw the decline in Felda Global Venture’s (FGV) performance this year.
CIMB analyst Ivy Ng Lee Fang said the bearish market conditions has been tough for all commodity players in general because commodities prices are falling, resulting in lower profit.
“FGV is affected like the rest but more so because of high replanting costs and weaker yields.
“However, those with strong balance sheet and low costs of production will fare better
“So far FGV’s performance is subpar compared to other planters under our coverage, in terms of earnings achievement this is due to weaker fresh fruit bunches (FFB) production,” she said.
On Monday, FGV announced that its year on year performance had experience a decline in revenue by seven per cent to RM6.9 billion and its net profit slumped 69 per cent to RM145 million.
When asked on how to cushion the negative effects caused by the external factors, Ivy Ng said that planters will need to raise productivity and reduce costs.
In terms of restoration efforts, she suggested for FGV to take necessary measures to strengthen its business and lower costs in order to boost profits.
She also said that FGV’s “recovery will depend on global economic conditions and government policies.”
Meanwhile, another analyst who commented on condition of anonymity argued that FGV had not done too badly compared to others in the industry, based on its second quarter (Q2) released on Monday.
He pointed that while FGV’s year on year performance had declined, the group managed to record a better performance in its second quarter (Q2) of this year compared to the first, with RM4.2 billion of revenue and RM103 million profit after tax and tithe.
By comparison, Kuala Lumpur Kepong Bhd’s profit fell by 19.5 per cent to RM184.9 million due to a drop in the average selling prices of commodities in Q2.
Bousted Holdings Bhd also performed poorly in Q2 as its net profit fell 92 percent from a year earlier due to the decline in oil palm plantation and fuel-trading revenue.
It was reported that Bousted net profit fell to RM2.9 million in Q2 ended in June 30, 2015 from RM34.6 million. Revenue was lower at RM2.21 billion versus RM2.59 billion.
In terms of year-on-year performance, the analyst insisted that FGV was not the only commodity players who performed poorly as IOI Corp Bhd has had its plantation profit fell 26 per cent to RM235.8 million during its quarter review.
The slump in its profit was due to the lower crude palm oil price, which averaged at RM2,197 per tonne, compared with RM2,661 per tonne previously.
“Compared to other plantation companies, 75 per cent of FGV’s revenue comes from the upstream segment of the industry.
“FGV also pays RM250 million in land lease agreement to Felda, plus 15 per cent of profit sharing, this is a big chunk of its profits that is unique only to FGV.
“While some analysts see that this is a liability, bear in mind that this amount is channelled to Felda, which takes care of settler’s development. This goes to the Government for nation building,” he said.
When asked on whether FGV needs to raise its productivity in order to cushion the negative impacts of the tough market condition, he said that FGV is currently “biting the bullet” by replanting 15,000 hectares per year.
“If they don’t do it now then it will only worsen in five years time.
“Based on what has been reported, I have noticed that FGV is taking all measures to conduct a proper on-going restoration efforts,” he said.
FGV in its Q2 report had announced positive results of its transformation efforts in several areas such as the plantation best management practices, procurement excellence and trading as well as marketing and logistic clusters.