30/11/2012 (The Star) - Felda Global Ventures Holdings Bhd's (FGVH) third quarter financial results are likely to disappoint.

This is due to weak crude palm oil (CPO) prices and low fresh fruit bunches (FFB) production growth during the three months under review, according to Maybank Investment Bank (IB) Research.

Research analysts contacted by StarBiz also concurred.

They pointed out that this was in line with the expectations of weaker earnings for plantation companies.

PublicInvest Research also noted that FGVH's 51%-owned sugar unit, MSM Malaysia Holdings Bhd, had reported earnings for the nine months ended September 30 which came in below the research unit's and consensus estimates, accounting for only about 59% and 63% of full year forecasts respectively.

For the nine months ended September 30, MSM Malaysia's net profit dropped 13.5% year-on-year to RM162.2mil.

The company attributed this to higher operating costs incurred and a lower sales volume in domestic and export markets.

PublicInvest Research said it has maintained a “neutral” rating on FGVH shares.

The research house set a target price of RM5.44 pending its review on the crude palm oil outlook and pricing (with a downward bias).

Meanwhile, Maybank IB Research has a “hold” call on FGVH's stock, with a target price of RM5.20 which is also under review.

Maybank IB Research said low FFB production growth of just 4% quarter-on-quarter and an 11% quarter-on-quarter drop in spot crude palm oil average sales price should take their toll on FGVH's third quarter financial results.

“Consequently, FGVH is likely to post weaker quarter-on-quarter core net profit of about RM190mil (second quarter: RM219mil), bringing core net profit for the first nine months of 2012 to RM609mil, just 58% of our full-year forecast,” said the research unit.

Maybank IB Research also noted that for the first 10 months of 2012, the group's FFB production of 3.96 million tonnes was 77% of its 2012 forecast, but this still lagged its expectations.

“Tree stress linger.

“With two months left in the year, we may have to review our forecast of the contraction in FGVH's FFB production in 2012 to 7% year-on-year (currently -2% year-on-year).”

The research unit also said with spot crude palm oil at around RM2,300 per metric tonne, it has downgraded its industry-wide 2012 crude palm oil average sales price assumption to RM2,950 per metric tonne (-6%, from RM3,150 per metric tonne).

It was also pointed out that there was uncertainty concerning the performance of its 49% associate Felda Holdings Bhd (FHB).

“Although FHB's earnings should improve on higher utilisation of its 20.4 million tonnes per annum milling capacity in the third quarter, this could be offset by potential refining losses and an inventory writedown at its palm oil refineries in Malaysia (total capacity: about 2.5 million tonnes per annum) if these refineries fail to take timely action to hedge against a 14% decline in palm olein prices in the third quarter,” said Maybank IB Research.