Planters to register weaker performance due to lower palm oil prices

by M JAY SHEILA / pic source:

PLANTERS will likely register a weaker performance, both quarter-on-quarter (QoQ) and year-on-year (YoY), in their upcoming quarterly results on the back of lower palm oil prices, said a local research house.

Hong Leong Investment Bank Bhd (HLIB Research) has maintained an ‘Overweight’ stance on the plantation sector, supported by commendable valuations and high near-term crude palm oil (CPO) prices.

It has maintained 2022-2024 CPO price assumptions of RM5,050/RM4,000/RM3,800 per tonne.

On a YoY basis, it said most planters will likely post a YoY decline in their upstream plantation earnings, on the back of lower fresh fruit bunches (FFB) output and palm product prices, coupled with higher production cost (arising mainly from full impact of minimum wage hike in Malaysia and higher fertiliser prices).

“Planters with high exposure of upstream operations in Indonesia will likely fare better than those with high exposure in Malaysia, given the change in export levy structure and possibly higher FFB output,” it said in a note released today.

On Kuala Lumpur Kepong Bhd (KLK), HLIB Research said its core earnings will likely come in lower in the third quarter of calendar year 2022 (3Q22), as higher FFB output (+26.8%, due mainly to FFB contribution from newly acquired subsidiaries) and inclusion of earnings from 26.3%-owned synthomer will likely be offset by lower palm product prices, impact from minimum wage hike and challenging operating environment at downstream segment.

For IOI Corp Bhd, it said the company’s core earnings will likely come in lower in 3Q22, as the 8.9% FFB output growth will likely be offset by lower palm product prices and potentially weaker contribution from manufacturing segment.

It has maintained a ‘Buy’ call both for KLK (target price of RM26.80) and IOI (RM4.65).

At 10.36am, KLK was trading at RM21.66, valuing the group at RM23.35 billion, while IOI was trading at RM3.97, valuing the group at RM24.58 billion.