Plantation counters hit by sluggish CPO prices in 2Q19

The cost of plantation has risen because of the higher minimum wage in addition to the high cost of fertilisers


PLANTATION counters are expected to record a sluggish quarterly performance in the second quarter of 2019 (2Q19) as a result of the dismal crude palm oil (CPO) and palm kernel (PK) prices.

In the April-June period, the price of CPO had ranged between a low of RM1,872.50 per tonne and a high of RM2,057.50, while the PK trended between RM1,227 and RM1,060.

CIMB Investment Bank Bhd regional head of agribusiness research Ivy Ng (picture) said the market was caught unaware of the CPO prices movement during the quarter, which had then affected the companies’ earnings for the April-June period.

“Earnings for the (2Q) for plantation companies are expected to be lower than a year ago and the (1Q), simply because of lower CPO and PK prices.

“However, given the price that has transpired, the performance was still a disappointment for the market because the companies might have not expected the prices to be so weak in the (2Q),” she told The Malaysian Reserve recently.

She added that poor earnings were also contributed by secondary factors such as the increase in minimum wage and high cost of fertilisers.

“At the same time, the cost of plantation has risen because of the higher minimum wage, in addition to the high cost of fertilisers.

“Those are the key reasons behind the performance. Some of the companies have shown poor results and they are still below expectations. However, the results are not entirely unexpected,” she said.

The research house also projected that the counter’s performance to recover in the second half of 2019 (2H19) as the palm oil production and CPO prices are expected to improve.

“Our view is that the performance in (2H) would be better because typically, the production during the period is seasonally higher, about 55% of the full-year production, signalling better volume for planters.

“Also, if we look at the current trend of CPO prices, it is better than what we saw in the average of (1H). If the price could sustain at that level, the planters could probably get better production and prices in 2H19.

“We are optimistic that if the 2Q19 result is lower than the performance in 1Q19, it may be the planters’ worst quarterly earnings for this year,” she said.

In the tabling of Budget 2019, the government had raised the minimum wage in the country to RM1,110 nationwide starting Jan 1, from the initial proposal of RM1,050 monthly and RM5.05 per hour.

Public Investment Bank Bhd said the CPO prices for the remaining of the year would have to depend on the commodity’s inventory level, despite showing some signs of recovery.

“CPO prices are recovering as they have rebounded 15% to RM2,239 per tonne after hitting a one-year low in mid-July.

“CPO prices have averaged at RM2,118 per tonne in year-to-date.

“The price performance in the coming months would have to depend on the inventory level as production resumes its up cycle,” it said.

For the April-June period FGV Holdings Bhd recorded a wider net loss of RM52.2 million from RM23.43 million a year ago mainly due to the impact of lower CPO price and losses incurred in its sugar sector.

Its revenue for the quarter declined to RM3.28 billion from RM3.44 billion in 2Q18.

Boustead Plantations Bhd said its lower revenue of RM123.95 million, 12.56% down from RM141.75 million previously, was attributed to the significant decline in the prices of palm products.

Perak-based Kuala Lumpur Kepong Bhd’s revenue for its plantation segment slumped 67.9% to RM39.8 million due to the dampened CPO prices, while IOI Corp Bhd’s plantation segment recorded 52% decline in revenue to RM483 million as its product prices remained low.