High CPO price to sustain plantation’s 4Q earnings

By FARA AISYAH / Pic MUHD AMIN NAHARUL

LOCAL plantation companies are expected to sustain their earnings momentum in the fourth quarter of 2020 (4Q20) on stronger crude palm oil (CPO) prices and lower inventories.

Maybank Investment Bank Bhd (Maybank IB) senior analyst Ong Chee Ting expects the palm oil stockpile in November to ease marginally to 1.54 million tonnes on a weaker month-on-month output, as inventories in October hit a three-year low of 1.57 million tonnes.

“Meanwhile, the market continues to factor in the weather risk premium on La Nina’s potential threat on South America’s ongoing soybean planting. Overall, we believe the recent spike in CPO price should more than compensate for the anticipated weaker output in 4Q20,” Ong stated in a recent research report.

He identified weather anomalies, lower than expected CPO price achieved and negative policies imposed by countries as key downside risks to the sector.

Other external pressures include unfriendly government policies toward producing countries; a sharp drop in lower crude oil prices which make palm biodiesel demand not viable; and weaker competing oil prices including soybean and rapeseed.

Ong said core profit after tax and minority interest of 56% of the stocks under Maybank IB’s coverage — including Sarawak Oil Palms Bhd, Boustead Plantations Bhd, Ta Ann Holdings Bhd, TH Plantations Bhd and Genting Plantations Bhd — were ahead of its expectations, while the remaining 33% were in line.

Only Kuala Lumpur Kepong Bhd (KLK) fell short of expectation on higher than expected taxes and lower than expected associate or joint-venture contribution.

Maybank IB recently raised its industry-wide CPO average selling price (ASP) forecasts to RM2,660 per tonne for 2020 and RM2,500 per tonne for 2021.

For 3Q20, Sarawak Oil Palms’ net profit more than doubled to RM73.84 million from RM30.91 million in the same quarter last year, mainly attributed to higher average realised prices of palm products.

Boustead Plantations posted a RM17.97 million net profit for the three-month period, versus a RM34.31 million net loss bunches (FFB) production.

TH Plantations also recorded a rebound during the quarter with a net profit of RM15.77 million against a net loss of RM31.61 million due to higher average realised prices for CPO, palm kernel (PK) and FFB, despite the lower sales volume.

Meanwhile, Ta Ann’s earnings for the quarter increased 72.6% year-on-year (YoY) to RM42.77 million from RM24.78 million in 3Q19 on higher ASPs of CPO and FFB.

Genting Plantations’ earnings in 3Q20 more than tripled to RM61.38 million from RM17.96 million in July to September 2019 period, underpinned by stronger palm products prices and higher demand for its refined palm products.

KLK’s net profit for the July to September 2020 period grew 19.31% YoY to RM208.82 million from RM175.02 million in the same quarter last year, driven by favourable CPO and PK selling prices.