CPO price in 1Q drags plantation segment

The palm oil inventory has dipped below 3m due to the govt’s biodiesel programme

by SHAHEERA AZNAM SHAH
DESPITE the stabilising palm oil demand from the domestic market and recovery in the commodity’s price, the plantation segment on the local bourse had reported a lower quarterly results for the first quarter of 2019 (1Q19).

In the first three months, the price of crude palm oil (CPO) had ranged between a low of RM1,834 per tonne and a high of RM2,153.

The CPO price took a nosedive in the 4Q18, which had sunken to one of its worst historical prices in three years.

The commodity price had also dropped to as low as RM1,717.50 in November, a significant RM800 lower than its highest trading price in the first half of last year (1H18).

At the end of last year, the palm oil inventory stood at a high 3.21 million tonnes, 18% higher than the closing stock in 2017.

In 1Q19, the palm oil inventory had dipped below three million as a result of the government’s biodiesel programme in transportation and industrial sectors along with higher export demand.

IOI

IOI Corp Bhd’s net profit, in the 3Q for financial year (FY) end June 30, 2019, plummetted by 80% year-on-year (YoY) to RM240 million from RM2.07 billion, dragged by the weaker contribution from its plantation segment.

The profit from the plantation segment fell 44% to RM132.6 million from RM238.3 million due to the depreciation in CPO and palm kernel (PK) prices during the quarter.

The average CPO price realised between January and March were RM2,039 per tonne compared to RM2,593 in the same period last year, while the PK price averaged at RM1,474 per tonne this year against RM2,376 last year.

Hong Leong Investment Bank Bhd (HLIB) said it had lowered the earnings forecast for IOI’s financial performance in 2019 due to the trend of realised palm product prices to date.

“We lower our FY19 core net profit (CNP) forecast by 13.3% to RM728.8 million, mainly to account for realised palm product prices.

“We leave our CNP forecast in FY20 and FY21 unchanged for now, pending a further review in our projected average CPO price assumptions post reporting season.

“Our sensitivity analysis indicates that every RM100 per tonne change in our average CPO price assumptions will change our FY20 and FY21 CNP forecasts by circa 5.5%,” HLIB stated in its research note.

HLIB maintained its “Sell” rating for IOI Corp despite the earnings disappointment. Shares in IOI fell two sen or 0.46% at RM4.30 yesterday, giving the group a market value of RM27.02 billion.

Kuala Lumpur Kepong

Kuala Lumpur Kepong Bhd’s (KLK) plantation division reported a notable lower contribution as the segment’s profit were down 55.8% YoY in the 2Q for FY ended Sept 30, 2019 to RM100.9 million from RM228.4 million due to the depreciation in CPO and PK prices.

In contrast, KLK’s net profit rose 34.7% YoY to RM142.96 million against RM106.15 million on lower taxes, while its revenue for the quarter were down 15.9% from RM4.69 billion in the previous year.

Maybank Investment Bank Bhd (Maybank) said KLK’s earnings for the quarter fell short of expectations, largely due to the lower than expected in CPO price.

The research house said it is keeping KLK’s ratings on hold in anticipation of a better realisation of the commodity prices.

“While we anticipate stronger upstream earnings in the coming quarters, earnings risk is on the downside if CPO price does not pick up quickly.

“As for downstream, margin is likely to remain favourable in view of stable and still low feedstock prices,” it said.

Shares in KLK closed up six sen or 0.24% higher at RM24.66, giving the group a market value of RM26.32 billion.

Sime Darby Plantation

Sime Darby Plantation Bhd (SDP), the world’s biggest palm oil producer by acreage, was heavily impacted by the depreciation in the commodity’s prices as its net profit in the first three months sank 70% YoY to RM74 million from RM249 million in the same period last year.

Its quarterly revenue fell 18% to RM3.01 billion against RM3.66 billion in the previous year.

The group’s upstream segment recorded a profit before interest and tax (PBIT) of RM83 million in the same quarter, a 71% declined from RM283 million a year ago.

However, its downstream segment’s PBIT rose 31% to RM85 million, grew on the back of improved performance in the Asia Pacific operations, arising from higher sales volumes and better margins which were driven by favourable import duties in India and Indonesia.

Due to weaker earnings, HLIB had slashed the plantation company’s FY19 and FY20 net profit forecast by 82.9% and 5.1% respectively, mainly due to realised palm product prices and higher finance cost assumptions.

“We will be reviewing our palm oil price assumptions for FY20 and FY21 further post reporting season, which will most likely result in a wide reduction in our CNP forecasts for all plantation companies under our coverage,” it said.

Meanwhile, Kenanga Investment Bank Bhd said SDP’s management has downgraded its CPO guidance, foreseeing the commodity to trade lower due to uncertainty from the global trade war.

“In its briefing, the management noticeably toned down its CPO price guidance, now foreseeing it to be traded between RM2,000 and RM2,250 per tonne in 2H19 against RM2,250-RM2,450 previously — citing uncertainty from the US-China trade war.

“We are slightly more pessimistic, with CPO price forecast ranging between RM1,800 and RM2,100 per tonne for 2H19, we expect rising stockpiles in both Indonesia and Malaysia, which could possibly revisit the three million mark and place tremendous pressure on CPO prices,” it said.

At yesterday’s closing, shares of SDP was flat at RM4.58, giving the group a market value of RM31.53 billion.

Genting Plantations

Genting Plantations Bhd’s net profit in the 1Q for FY ended Dec 31, 2019 dropped 58.72% YoY to RM41.68 million from RM100.98 million, while its quarterly revenue rose 17.51% to RM621.7 million from RM529.07 million.

The group attributed the loss to the average selling price of CPO, which was dragged 17% lower at RM1,974 per tonne in 1Q19, while the average selling price for PK was down 38% at RM1,283.

The company said the selling price of palm products remained pressured by the persistently high inventory levels, protracted US-China trade discord and concerns on demand from major importing countries.

The downswing in its recent quarter was in contrast with the group’s fresh fruit bunches production during the quarter, which grew 14% YoY, contributed by the growth from its Indonesia operations, better age profile of its plantation and the stronger yield from the Malaysia operations.

Maybank anticipated for Genting Plantations to have a stronger upstream earnings in the 2H19, to grow on the back of the commodity’s price and output recovery.

“On its fertiliser application, Genting Plantation has completed about 20% of its fullyear programme in 1Q19, similar to 1Q18.

“While we anticipate stronger upstream earnings in 2H19 on price and output recovery, risk to our FY19 earnings is on the downside if CPO price does not recover quickly,” it said.

Genting Plantation’s shares closed eight sen or 0.78% higher at RM10.36 yesterday, giving the group a market capitalisation of RM8.41 billion.