RSPO withdrawal will have minimal impact on earnings, says FGV

PETALING JAYA: Felda Global Ventures Holdings Bhd (FGV) said the withdrawal of its Roundtable on Sustainable Palm Oil (RSPO) certificates will have minimal impact on its earnings.
FGV told Bursa Malaysia that the group and The Federal Land Development Authority (Felda) withdrew from RSPO-principles and criteria (P&C) certificates for 58 complexes located throughout Malaysia effective yesterday.
In an email-reply to SunBiz, FGV said the withdrawal of RSPO certificates will hit the group’s revenue as it will not be able to sell its crude palm oil (CPO) products with a RSPO premium.
However, it noted that the total amount of CPO products that will be affected was less than 1% of its revenue.
“Yes, but its minimal. Less than 1% to our performance,” FGV told SunBiz via email when asked of the potential impact of the RSPO withdrawal on the group’s earnings yesterday.
Despite the withdrawal, FGV said that Felda Group remains a member of RSPO and continues its commitment to RSPO P&C.
FGV said that it will focus on recertifying all its palm oil mills within the group.
“We aim to complete all 70 complexes within three years,” it noted.
FGV is the second big-cap Malaysian plantation company that is being hit by an RSPO issue following the suspension of IOI Corporation Bhd’s RSPO membership.
FGV said that Felda Group, its parent company, is currently addressing all sustainability issues along the supply chain.
FGV explained that the withdrawal of RSPO P&C certification allows the group to roll out an inclusive sustainable plantation practices programme with 102,100 smallholders throughout the country.
“This exercise also allows a more comprehensive certification between commercially managed plantations by FGV and Felda smallholders,” it told SunBiz.
Meanwhile, FGV also refuted claims that the RSPO withdrawal will also affect its downstream sales.
“This exercise does not affect Felda Group’s RSPO Supply Chain Certification System (SCCS) certificate of its kernel crushing plants and downstream refineries,” it said.
Before the announcement yesterday, PublicInvestment Bank Research (PIVB) said that FGV’s downstream sales could also be affected from the RSPO withdrawal as its contracts with multi-national companies could face termination risk.
However, it did note that FGV’s downstream’s earnings only made up 2.3% of the group’s bottomline in FY15, which is relatively small.
PIVB believed that the request for withdrawal of RSPO certificates could relate to peat soil land in Sarawak, which makes up 60% of FGV’s plantation area. Based on the FY15 annual report, FGV has about 30,668ha in Sarawak.
It noted that FGV has a landbank of around 431,622ha, which includes 353,260ha under the land lease agreement with Felda.
PIVB pointed out that about two-thirds of FGV’S fresh fruit bunches (FFB) are sourced from Felda smallholders, who own 475,000ha of land, as well as third party purchase, while the remainder comes from its own plantation land.
PIVB has an “undeperform” call on FGV with a target price of RM1.44. FGV gained 0.69%, or 1 sen, to close at RM1.46, with four million shares done yesterday.