MARKET DEVELOPMENT
CPO Plantation Credit Profiles To Withstand Lower Prices -- Fitch
CPO Plantation Credit Profiles To Withstand Lower Prices -- Fitch
20/02/2014 (Bernama) - The credit profiles of crude palm oil (CPO) companies are likely to remain resilient against lower CPO prices, says Fitch Ratings in its report, 'Asian Crude Palm Oil - Credit Profiles Stable Despite Lower Prices and Operating Profit'.
Fitch said this was because individual firms still had steady operating cash flows which were adequate to part-finance projected increases in expansionary capital expenditure and maintain low-to-moderate financial leverage.
It said Malaysia and Indonesia continued to dominate the industry and met as much as 40 and 49 per cent, respectively, of global demand.
"The bulk of production is for exports to key markets such as China, India and European Union.
"The main pressure on the industry has been the 14 per cent decline in the global CPO price in 2013, to US$857 per tonne," it said.
However, Fitch said, marginally higher export volumes had offset the lower prices and resulted in marginally-lower-to-flat revenues at most rated companies.
Fitch said that employee cost pressures had also buffeted the industry.
"This is because Malaysia imposed a statutory minimum wage -- in the peninsular heartland, accounting for 54 per cent of total CPO production -- which we estimate has raised overall operating costs by around 13 per cent year-on-year (yoy).
Meanwhile, Fitch said, Indonesia raised its minimum wage by 40 per cent, which pushed up the fixed costs of its relatively labour-intensive production base.
Fitch said it expected operating profit to be maintained at the same level as last year.
"Modest revenue growth of around five per cent yoy in Malaysia and 10 per cent in Indonesia should remain underpinned by steady CPO prices, which we estimate will remain range-bound between US$800-900 per tonne, and modest increases in export volumes, base on reasonably healthy global demand" it said.
Fitch said this was because individual firms still had steady operating cash flows which were adequate to part-finance projected increases in expansionary capital expenditure and maintain low-to-moderate financial leverage.
It said Malaysia and Indonesia continued to dominate the industry and met as much as 40 and 49 per cent, respectively, of global demand.
"The bulk of production is for exports to key markets such as China, India and European Union.
"The main pressure on the industry has been the 14 per cent decline in the global CPO price in 2013, to US$857 per tonne," it said.
However, Fitch said, marginally higher export volumes had offset the lower prices and resulted in marginally-lower-to-flat revenues at most rated companies.
Fitch said that employee cost pressures had also buffeted the industry.
"This is because Malaysia imposed a statutory minimum wage -- in the peninsular heartland, accounting for 54 per cent of total CPO production -- which we estimate has raised overall operating costs by around 13 per cent year-on-year (yoy).
Meanwhile, Fitch said, Indonesia raised its minimum wage by 40 per cent, which pushed up the fixed costs of its relatively labour-intensive production base.
Fitch said it expected operating profit to be maintained at the same level as last year.
"Modest revenue growth of around five per cent yoy in Malaysia and 10 per cent in Indonesia should remain underpinned by steady CPO prices, which we estimate will remain range-bound between US$800-900 per tonne, and modest increases in export volumes, base on reasonably healthy global demand" it said.