Flood to have minimal impact on FGV

by ANIS HAZIM / pic by MUHD AMIN NAHARUL

FGV Holdings Bhd may experience a minimal impact financially from the severe flooding in Peninsular Malaysia, which closes off an eventful year for the global edible oil’s group.

Kenanga Investment Bank Bhd head of research Koh Huat Soon said 57% of FGV’s estates are located in West Malaysia but he believes less than 2%-3% of its estates are facing floods.

Comparing FGV with its peer, Sime Darby Plantations Bhd, seems a little risky as the latter’s estates are located in coastal Selangor.

Sime Darby Plantations also has estates in Sabah, Indonesia and Papua New Guinea which may taper the risks.

“The plantation sector is not new to heavy rainfall or even occasional flooding. Many players have invested in infrastructure to cope with heavy rain. Moreover, oil palms are tough trees and can endure most floods,” stated Koh in his recent note.

He noted that unexpected labour shortages, poor weather or negative news from rival oil and fat complexes will taper the bright future.

“If there is any negative development on the sector arising from the floods, crude palm oil (CPO) prices are likely to stay firm longer,” Koh wrote.

2021 was an eventful year for FGV, with the bid to take it private at RM1.30 a share by Federal Land Development Authority (Felda) failed.

The government agency appears intent to reclaim its prized asset and has been raising its stake cautiously by buying FGV shares from the open market.

Felda bought 47,000 FGV shares on Dec 29 to take its deemed stake in the company to 79.78%.

Could 2022 see a fresh offer tabled to minority shareholders?

FGV, along with Sime Darby Plantations, faced bans imposed by the US Customs and Border Protection (US CBP) last year due to allegations over forced labourers issue.

According to US CBP, the actions were taken based on information that reasonably indicates the use of forced labour in FGV’s manufacturing operations.

On Nov 16, FGV appointed Hong Kong-based Elevate as its independent auditing firm to assess 11 of the International Labour Organisation’s forced labour indicators.

In a statement, FGV stated the assessment is part of the group’s efforts towards petitioning for the revocation of the withhold release order (WRO).

MIDF Research is positive on FGV’s action to remove itself from the US CBP’s list.

“We view that Elevate’s expertise will help to accelerate the auditing process which will eventually pave the way to the revocation of FGV’s WRO by the US CBP,” stated MIDF Research in a research note on FGV.

MIDF has a ‘Buy’ rating on FGV, which much like its industry peers, is enjoying bumper CPO prices.

The group announced plans to raise RM500 million by establishing a sukuk murabahah programme and had lodged with the Securities Commission Malaysia.

In a filing to Bursa Malaysia, FGV said the proceeds from the sukuk shall be utilised to refinance existing financing and borrowings.

“For the avoidance of doubt, the utilisation of the proceeds of the sukuk murabahah programme shall at all times be for shariah-compliant purposes,” FGV stated in its exchange filing.

The sukuk programme would provide the plantation group with alternative access to funding in the local debt capital market on top of conventional bank borrowings.

For its latest third quarter ended Sept 30, 2021, FGV reported total borrowings of RM4.17 billion.

Notably, the sukuk programme will improve the group’s gearing from the previous financial years.

FGV’s share price closed the year one sen lower at RM1.48 last Friday, valuing the group at RM5.4 billion.