Difficult roads for FGVH as sugar biz falls to red territory


There is no easy way back for Felda Global Ventures Holdings Bhd (FGVH) unless a sharp turnaround for the sugar division and the tapering of crude palm oil (CPO) drop, say analysts.

The world’s largest crude palm oil producer reported a net profit of RM2.46 million for the first three months of this year while revenues rising to RM4.32 billion from RM3.76 billion a year ago. The planter incurred a loss of RM81 million for the first-quarter of 2016 (1Q16).

Higher raw sugar price which rose RM558 per metric tonne for the quarter, and provisions and impairments hurt the planter.

Analysts are worried on FGVH’s subsidiary MSM Malaysia Holdings Bhd’s inability to fully pass on the higher raw sugar costs to consumers. MSM posted a loss of RM34.6 million for the first three months of this year compared to earnings of RM59.1 mil- lion last year.

They said FGVH’s earnings risks will remain elevated if MSM’s performance does not rebound sharply.

MIDF Research said FGVH 1Q17’s core net profit (CNP) of RM500,000 was below expectation and the negative deviation was due to the unexpected loss in the sugar division.

The group’s profitability was adversely affected by its sugar business, which fell into the red with a loss of RM23.16 million from a profit of RM61.6 million a year ago. FGVH has a 51% interest in MSM, the largest local sugar refiner.

The research house has reduced its financial year 2017 CNP by 38% to RM70 million (from RM113 million previously), taking into account the higher raw sugar prices. MIDF maintained a ‘Neutral’ call for the planter with a lower target price of RM1.59.

AllianceDBS Research Sdn Bhd expects steadier earnings for FGVH in the coming quarters including positive contribution from the sugar business.

But execution risks continued to shadow the sector, including re very in production and CPO price movements.

Kenanga Research said CPO prices have started to trend lower due to the higher fresh food bunch production in Malaysia and Indonesia.

However, production would still be lower than 2015 on lower operating expense ratio and labour shortage.

“We expect the plantation business to post improvement compared to last year, thanks to the stronger first-half of 2017 CPO prices, production recovery, and new contribution from young areas,” it added.

AllianceDBS, however, believes that FGVH’s sugar segment is expected to normalise, as the retail sugar price hike of 11 sen came into effect in March 2017, and raw sugar prices has eased in 2Q17.

“Sugar earnings hit by higher raw material costs. But this is expected to normalise going forward,” it said.