FGV profitability hinges on CPO prices

By ALIFAH ZAINUDDIN

FGV Holdings Bhd could return to profitability this year if exports improve and crude palm oil (CPO) prices climb to favourable levels — ending the company’s five quarters of successive losses.

The world’s largest CPO producer’s prospects remain promising despite continuous losses in the first quarter ended March 31, 2019 (1Q19), chalking a deficit of RM3.37 million compared to a net profit of RM1.13 million posted a year ago.

Ongoing efforts to improve the company’s palm tree age profile, optimise costs and troubleshoot operational weak spots have seen its plantation business record twice as much revenue this year to RM39.83 million from RM19.46 million last year.

FGV is also looking to rejig its downstream plantation business by introducing four new products in 2Q19, namely mass blended oil, industrial margarine, premium blended oil and coconut milk. The company also wants to capitalise on its popular cooking oil Saji, which has a local market share of about 30%.

The company is also exploring ways to maximise the usage of its massive landbank, spanning a total of 439,725ha across two countries, by diversifying its crops to include alternative crops like coconuts, as well as cash crops such as durian, bananas and pineapples. FGV’s total planted area as at Dec 31, 2018, stood at 352,255ha.

Group CEO Datuk Haris Fadzilah Hassan said transformation at FGV is at full speed as improvements can be seen in the production and yield in fresh fruit bunches.

“We are seeing the results,” Haris Fadzilah said at the company’s quarterly results briefing in Kuala Lumpur yesterday.

FGV expects CPO prices to remain depressed between RM1,900 and RM2,200 per tonne this year as global inventories remain high. Industry estimations are more bullish at RM2,200 to RM2,400 per tonne in 2019.

“We are seeing a period of abnormal movements for CPO prices. There is also that external factor with regard to the US-China trade war. Palm oil is always interplayed with soybean and other vegetable oils, but there is also the demand issue with regard to China.

“In China, from what we have understood, the inventory level there is also high even though the government has announced a slew of activities, but we have not seen real demand from China,” Haris Fadzilah said.