MARKET DEVELOPMENT
Plantation Sector To See Better Prospects in 2H13 After Disappointing 2Q13
Plantation Sector To See Better Prospects in 2H13 After Disappointing 2Q13
10/09/2013 (Borneo Post) - The second quarter 2013 (2Q13) results for the Malaysian planters have been viewed as largely disappointing, due mainly to higher-than-expected production costs. However, with seasonal peak fresh fruit bunches (FFB) production expected, flattish crude palm oil (CPO) prices and lower unit costs are expected to translate into better earnings for second half 2013 (2H13).
RHB Research Institute Sdn Bhd (RHB Research) highlighted this in a recent research report and noted that the results for the Malaysian plantation stocks in 2Q13 were largely below expectations, with five stocks out of 11 reporting disappointing results due to weaker-than-expected CPO prices and therefore higher-than-expected unit production costs.
“For 2H13, we expect the pickup in FFB production, as we head towards the seasonal peak months, to translate into better earnings for the plantation companies. This is assuming that 2H13 CPO prices do not fall below the 1H13 averages of RM2,324 per tonne.
“Most of the companies we cover expect the seasonal peak this year to be around October toNovember, which will mean that 3Q earnings could be relatively flattish (versus 2Q), while 4Q earnings could be the peak quarter for the year.
“In addition, most companies apply more fertiliser in the 1H of the year, due to the conducive weather, which means that average unit costs should also decline in 2H13. On average, the percentage of fertiliser applied in 1H versus 2H is approximately 60:40,” noted the research house.
It also added that, “As for CPO prices, with year to date (YTD) average at RM2,328 per tonne quite close to our projected RM2,400 price assumption for 2013, we do not expect to have to revise this downward.
“We highlight that for the purer planters, we have also imputed a discount based on the export tax rate applicable at these prices. We highlight that, for the purer planters, we have also imputed a discount based on the export tax rate applicable at these prices.”
RHB Research noted that most of the plantation players were still fairly valued at best and there was room for consensus estimates to be trimmed in the months ahead, as its forecasts were generally still about five to 10 per cent below consensus.
“We maintain our valuation targets of 16 to 18 times calender year 2014 for the plantation divisions and 12 times calender year 2014 for the manufacturing and other divisions,” it concluded.
RHB Research Institute Sdn Bhd (RHB Research) highlighted this in a recent research report and noted that the results for the Malaysian plantation stocks in 2Q13 were largely below expectations, with five stocks out of 11 reporting disappointing results due to weaker-than-expected CPO prices and therefore higher-than-expected unit production costs.
“For 2H13, we expect the pickup in FFB production, as we head towards the seasonal peak months, to translate into better earnings for the plantation companies. This is assuming that 2H13 CPO prices do not fall below the 1H13 averages of RM2,324 per tonne.
“Most of the companies we cover expect the seasonal peak this year to be around October toNovember, which will mean that 3Q earnings could be relatively flattish (versus 2Q), while 4Q earnings could be the peak quarter for the year.
“In addition, most companies apply more fertiliser in the 1H of the year, due to the conducive weather, which means that average unit costs should also decline in 2H13. On average, the percentage of fertiliser applied in 1H versus 2H is approximately 60:40,” noted the research house.
It also added that, “As for CPO prices, with year to date (YTD) average at RM2,328 per tonne quite close to our projected RM2,400 price assumption for 2013, we do not expect to have to revise this downward.
“We highlight that for the purer planters, we have also imputed a discount based on the export tax rate applicable at these prices. We highlight that, for the purer planters, we have also imputed a discount based on the export tax rate applicable at these prices.”
RHB Research noted that most of the plantation players were still fairly valued at best and there was room for consensus estimates to be trimmed in the months ahead, as its forecasts were generally still about five to 10 per cent below consensus.
“We maintain our valuation targets of 16 to 18 times calender year 2014 for the plantation divisions and 12 times calender year 2014 for the manufacturing and other divisions,” it concluded.