Plantation counters to record weaker performance in 3Q

The sector’s earnings are expected to be mainly in line with industry players’ expectation, analyst says


PLANTATION counters are likely to record a weaker year-on-year (YoY) financial performance in the third quarter of 2019 (3Q19) due to price volatility of crude palm oil (CPO) and palm products.

CGS-CIMB Securities Sdn Bhd head of research Ivy Ng said the earnings of companies in the sector in 3Q19 are estimated to improve compared to the 2Q19.

“3Q results will be slightly better quarter-on-quarter simply because we had better production and higher prices.

“On a YoY basis, the companies are expected to report weaker earnings as palm kernel and CPO prices are still lower than last year, although the production has been higher,” she told The Malaysian Reserve.

She added that the sector’s earnings are expected to be mainly in line with industry players’ expectation.

“This year, you have potentially higher costs, thus we think the 3Q performance will be lower and will be broadly in line with market expectations,” she said.

Ng said the palm oil market is expecting India to revise its import duty for palm oil beginning Jan 1, 2020, which has prompted speculation of the raised levy by the Indian government.

“We see potential trade diversion of Malaysia palm oil to Indonesian palm oil by India. I think that will likely to happen given the recent development in India.

Going into Jan 1, 2020, CGSCIMB is waiting to see whether India revises its import duty structure and lower the duty of palm oil in general, similar to what happened at the start of this year.

“There are some talks that the Indian government may want to consider putting up additional taxes to offset the reduction in tax,” she said.

The CPO prices in 3Q19 were averaged at RM1,879, RM2,066.50 and RM2,097 in July, August and September respectively.

Yesterday, Bursa Malaysia Plantation Index gained 0.75% or 51.11 to 6,887.89, boosted by the uptrend in CPO prices due to supply concerns.

Kuala Lumpur Kepong Bhd’s share price contributed the most to the index as it rose 1.3% or 30 sen to RM22.28, while IOI Corp Bhd rose four sen to RM4.46. Sime Darby Plantation Bhd rose three sen to RM5.03 despite price of the benchmark CPO futures contract ending RM16 lower at RM2,513 a tonne yesterday.

The gain in the plantation index was offset by Kretam Holdings Bhd which declined 2.63%, while Pinehill Pacific Bhd had the biggest drop with 5.45%.

The plantation index has declined by 6.94% in the past 52 weeks. It was 8.52% below the 52-week high on Feb 20, 2019, and 6.84% above its low on Dec 18, 2018.

The index gained 2.91% in the past five days and has risen 4.87% in the past month.

The index counters have a total market capitalisation of RM128.5 billion.


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