KUCHING: FGV Holding Bhd (FGV) made its way back into profits during its second quarter of financial year 2020 (2QFY20) with a revenue of RM3.3 billion and a profit before tax of RM17.8 million.
This compares favourably against a loss before tax of RM163.1 million in 1QFY20.
Affin Hwang Investment Bank Bhd (AffinHwang Capital) noted that FGV’s plantation division showed a turnaround in profits due to higher fresh fruit bunch (FFB) production, higher mills utilisation rate and lower production costs.
“FGV’s FFB production in 2Q20 increased by 66.9 per cent quarter on quarter (q-o-q) to 1.2 million metric tonnes (MT), but was partially offset by lower crude palm oil’s (CPO) average selling price (ASP) of RM2,309 per MT.
“The surge in FFB production was after a low base in 1Q20, adversely impacted by the lagged impact of dry weather conditions experienced in 2019,” it explained yesterday.
FGV’s logistics and others division also recorded a higher profit in tandem with higher FFB production, while the sugar division showed lower losses in 2Q20 due to lower operating expenditure. After excluding the one-off items, FGV recorded a core net profit of RM49 million in 2Q20.
FGV’s plantation division profits in 2H20 are expected to be driven mainly from the continuous operational improvement, as AffinHwang Capital believe FFB and CPO production will continue to pick up as the peak production period towards Oct/Nov approaches, but this could partially be offset by lower CPO prices in 2H20.
“We expect 2H20 FFB production to increase over 30 per cent versus 1H20. This, coupled with higher mills utilisation rate, should bring down the unit production costs,” the research firm added.
“Also, we expect the sugar division’s losses to narrow in 2H20 on higher capacity utilisation at its Johor refinery, which should help to reduce production cost.”
MIDF Amanah Investment Bank Bhd (MIDF Research) shared this view, believing that FGV’s profitability in the coming quarters could be sustained in 2H20.
“In view of the anticipated better FFB yield and CPO price with potential easing of lockdowns globally in second half of the year, we reaffirm our view that the group could sustained its turnaround trajectory in 1H20,” it said in its own notes.
“Note that the group’s continued diversification plan into downstream consumer products especially to India through partnership with a local company and signing of a distributorship agreement with My Agro Hub Resources of 30mt of animal feed monthly could continue to strengthen its downstream food FMCG business.
“In addition, the higher ASP of refined sugar and potential higher sales volume at its sugar segment would support the group to sustain its profitability as well. Nonetheless, we believe that the turnaround could be met with headwinds should there be any resurgence of Covid-19 outbreak and extended lockdowns.”
Moving forward, MIDF Research opined that the resumption of favourable CPO price in 2HFY20 coupled with a better FFB production and a potential recovery in demand to generate a better financial performance for the group.
In addition, the anticipated higher ASP of refined sugar and increase in sales volume should be able to help MSM to further reduce its losses in 2HFY20.
“This is expected to bode well for FGV. All factors considered, we are maintaining our neutral recommendation on FGV. Nonetheless, we do not discount the possibility of an execution risk which is dependent on the development surrounding the Covid-19 pandemic.”