PETALING JAYA: It is unlikely that the issue relating to the US Customs and Border Protection (CBP) ban on FGV Holdings Bhd’s palm oil to be resolved soon, as it is unclear as to which part of FGV’s labour practices triggered the ban, according to CGS-CIMB Research.
In a note, the research house said that while the group is of the view that the impact of this event on its earnings is not significant, it believes it may be too early to assess the exact impact of the CBP ban on the marketability of FGV palm products.
“We are of the view that end-customers are only starting to look into this matter and assessing its supply chain. If these issues are not resolved soon, it may lead to negative perception and lower pricing on FGV palm products,” it said.
The group sells around 40% of crude palm oil produced locally to its refineries and food sector. The remaining 60% is sold mainly to customers in India, Pakistan and China.
FGV said its direct sales of palm oil products to the US are minuscule and its oleo plant in the US mainly uses coconut oil and tallow as its raw materials.
However, sales of 25,000 tonnes a month of crude palm kernel oil (CPKO) to its 50/50 joint venture oleo plant with Proctor and Gamble may be affected. FGV said it will divert its sales of CPKO to other suppliers in the worst-case scenario.
CGS CIMB said it is maintaning its ‘hold’ call on FGV, with a target price of RM1.21.
To recap, FGV said CBP had on Sept 30 issued a detention order on palm oil produced by the group effective immediately.
It said it plans to continue to engage with CBP to submit the Fair Labor Association (FLA) assessment report together with additional supporting evidence. It is also considering the appointment of an independent audit firm to review FGV’s labour practices.
FGV added that it became a participating company of the FLA and is currently implementing a long-term and comprehensive action plan under its affiliation to the FLA that comprises a number of initiatives to further strengthen various aspects of its labour practices such as the recruitment process, human rights training programmes, working and living conditions, as well as grievance mechanisms, among others – which it hopes to accomplish by 2020.
“We are positive on FGV’s efforts to improve its labour practices, but feel that this will take time given the large pool of 15,969 foreign workers, mainly from Indonesia and India as well as the challenging operating environment,” it said.
Source: The Sun Daily
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