KUALA LUMPUR (Oct 1): CGS-CIMB Securities Sdn Bhd said today it is negative on the US ban on palm oil imports from FGV Holdings Bhd as the move will restrict market access for the sale of FGV’s palm oil via its refineries or joint ventures (JVs).
In a note today, CGS-CIMB analysts Ivy Ng Lee Fang and Nagulan Ravi said that in 2019, FGV derived 5.3% of its total revenue from exports to the US and Canada.
"The bulk or 56% of revenue came from Malaysia, [followed by] 10% from India, 7% from Pakistan, 4.3% from China, 2.5% from Europe and 15% from others (mainly Asia).
"In 2019, the US’ share of total global palm oil imports was not big at 2.7% [or 1.49 million tonnes]. However, the concern is that this may lead other countries or customers of FGV to reassess their purchase of palm oil from the group as a result of concerns about environment, social and corporate governance practices," the analysts said.
Yesterday, the US Customs and Border Protection (CBP) said in a statement that effective from the same day, at all US ports of entry, the CBP would detain palm oil and palm oil products made by FGV, its subsidiaries or JVs.
The CBP said its Office of Trade directed the issuance of a withhold release order against palm oil and palm oil products made by FGV based on information that reasonably indicates alleged use of forced labour.
"The order is the result of a year-long investigation that revealed forced labour indicators, including abuse of vulnerability, deception, restriction of movement, isolation, physical and sexual violence, intimidation and threats, retention of identity documents, withholding of wages, debt bondage, abusive working and living conditions, and excessive overtime. The investigation also raised concerns that forced child labour is potentially being used in FGV’s palm oil production process," the CBP alleged.
Brenda Smith, an executive assistant commissioner of the CBP’s Office of Trade, alleged in the statement that "the use of forced labour in the production of such a ubiquitous product allows companies to profit from the abuse of vulnerable workers".
Today, FGV said in a statement that since August 2019, the company had been communicating with the CBP through its legal counsel and that it had submitted evidence of compliance with labour standards.
FGV said it will continue to engage with the CBP "to clear FGV’s name, and is determined to see through its commitments to respecting human rights and upholding labour standards".
The CGS-CIMB analysts said the research house reiterated its "hold" call for FGV shares with an unchanged target price (TP) of RM1.21.
On Bursa Malaysia today, FGV's share price had fallen 11 sen or 9.57% as at 12.15pm to its lowest so far today at RM1.04, giving it a market value of about RM3.8 billion.
The stock saw some 28 million shares traded.