Lower CPO prices in 2Q hit plantation segment’s profits

TMR revisits the financial performances of major plantation companies in 2Q


PLANTATION counters on Bursa Malaysia Bhd recorded a sluggish financial performance in the second quarter of 2019 (2Q19) due to the dismal prices of crude palm oil (CPO) and palm kernel oil (PK).

In the April-June period, the price of CPO ranged from a low of RM1,872 per tonne to a high of RM2,057 per tonne, while the price of PK trended between RM1,227 a tonne and RM1,060 a tonne, dragging the Bursa Malaysia Plantation Index to the lowest point of 6,811.24 within the quarter.

In the first six months of the year (1H19), the price of CPO ranged between a low of RM1,834 in March and a high of RM2,153, which was recorded in February. Year-to-date, CPO price peaked last month at RM2,195.

The weak prices have been due to bearish supply demand fundamentals. CPO inventory as of July stood at 2.39 million tonnes, a 7.17% increase compared to last year’s stock level of 2.23 million tonnes.

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

CPO price nosedived in 4Q18 to a three-year low of RM1,717 in November, a significant RM800 lower than its highest trading price in 1H18.

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

The Malaysian Reserve (TMR) revisits the financial performances of major companies in 2Q, identifying what to expect in the following quarters.

Sime Darby Plantation Bhd

Sime Darby Plantation Bhd (SDP) posted a net profit of RM27 million for 2Q19 ended June 30, 2019, largely contributed by the registered losses in the upstream segment due to the weak CPO prices.

The largest plantation firm by landholding stated in its exchange filings that its quarterly performance continues to be impacted by the weak CPO and PK prices, but is partially cushioned by lower cultivation costs.

For the six-month period, SDP posted a net profit of RM101 million on the back of RM5.88 billion in revenue.

Moving forward, the planter expects the business sentiment in the palm oil industry to be challenging for the remaining of 2019 amid flat projection of CPO prices and external factors such as the movement of crude oil prices, currency valuation and global trade tensions, which would likely influence the prices of CPO and other palm products.

Shares of SDP closed five sen or 1% higher to RM4.87 last Friday, giving the group a market value of RM33.5 billion.

IOI Corp Bhd

IOI Corp Bhd (IOI) posted a 30% yearon-year (YoY) rise in earnings to RM46.6 million in 4Q19 ended June 30, 2019, owing to lower net foreign currency translation loss. It declared an interim dividend of 4.5 sen.

Its plantation segment reported a 52% decline in revenue for the quarter to RM483 million as CPO and PK prices remained low, while fresh fruit bunch (FFB) production fell.

IOI expects CPO prices to recover gradually in the next quarter on increased exports to major consuming countries such as India and China, and higher demand from the biodiesel industry in Malaysia and Indonesia.

Shares in IOI closed one sen lower at RM4.40 last Friday, giving the group a market value of RM27.65 billion.

Kuala Lumpur Kepong Bhd

Kuala Lumpur Kepong (KLK) posted a 66% YoY fall in net profit to RM48.6 million for its 3Q19 ended June 30, due to widening loss in its corporate segment.

The group’s plantation segment revenue was reduced by 67.9% YoY to RM39.8 million as CPO and PK prices continue to put a damper on this segment’s growth.

The weak CPO and PK prices are expected to lower KLK’s earnings for the year as the European Union continues to exert pressure by limiting palm oil trade.

KLK closed eight sen lower at RM23.58 last Friday, giving the group a market value of RM25.1 billion.

Genting Plantations Bhd

Genting Plantations Bhd’s net profit dropped 20.6% YoY to RM20.74 million in 2Q19 ended June 30, 2019, from RM26.14 million a year ago, as lower palm product prices outstripped the impact of higher fresh fruit bunches (FFB) production.

The group said markedly lower YoY selling prices of CPO and PK were recorded for the quarter due to several factors, including elevated inventory levels, weakness in soybean prices arising from the lingering US-China trade discord and uncertainty of demand from importing countries. This resulted in a 33% decline in its mainstay plantation segmental profit.

Nonetheless, the group managed to declare an interim dividend of 3.5 sen per share, compared to 4.75 sen a year ago.

The group expects its FFB production growth to extend into 2H19, but said prospects for the rest of the year will depend principally on the movements in palm product prices.

Genting Plantations closed three sen higher at RM9.75 for the week, giving the group a market capitalisation of RM8.75 billion.