Limited upside: A significant increase in near-term CPO price will be limited due to higher inventory level resulting from the seasonal high crop production.

29/05/2015 (The Star) - The weaker price of crude palm oil (CPO) is making a huge dent on timber companies’ earnings.

WTK Holdings Bhd, Jaya Tiasa Holdings Bhd and Ta Ann Holdings Bhd reported sharp falls in net profits for the quarter ended March 31, 2015 on lower contributions from their plantation divisions.

Their core businesses saw mixed results.

During the quarter in review, WTK’s net profit fell 65.1% to RM5.34mil from RM15.33mil in the corresponding quarter last year as both its timber and plantation divisions registered declines in earnings.

Jaya Tiasa’s net profit fell 92.2% to RM635,000 from RM8.17mil previously, dragged down by its plantation business, while its core timber division reported better results.

Ta Ann, which also reported poorer results in the plantation sector but improved performance in the timber segment, saw its net profit drop 5.5% to RM27.08mil from RM28.66mil previously.

In its filings, WTK attributed the lower earnings from its timber division to higher production cost as a result of the reduced volume which was due to higher rainfall, longer festive holidays and the recent changes in administrative procedures for forest management, which would be normalised in due course. The company noted that its plantation division reported a pre-tax loss due to insufficient fresh fruit bunches (FFB) production volume coupled with weak crude palm oil (CPO) prices to cover the operational costs.

WTK’s revenue fell 5.8% to RM159.77mil from RM169.59mil while its earnings per share (EPS) fell to 1.12 sen from 3.53 sen previously.

Meanwhile, Jaya Tiasa attributed the drop in its earnings mainly to the decline in FFB and CPO average selling prices and sales volume and higher production costs for FFB.

“The outlook for the timber division is expected to remain stable due to the limited log supply coupled with a strong US dollar which is favourable to our export sales,” Jaya Tiasa said.

“As we are entering into high crop season, FFB production is expected to pick up which will lead to a lower FFB production cost. However, significant increase in the near-term CPO price would be limited due to higher inventory level resulting from the seasonal high crop production,” it said in a statement.

During the quarter in review, Jaya Tiasa’s revenue fell slightly by 0.9% to RM243.14mil from RM245.43mil, while its EPS fell to 0.07 sen from 0.84 sen previously.

Year-to-date, Jaya Tiasa’s net profit fell 59% to RM19.19mil for the nine months to March 2015 from RM47.11mil the previous corresponding period. Its nine-month revenue rose 4% to RM793.35mil from RM762.85mil, while its EPS dropped to 1.98 sen from 4.87 sen previously.

As for Ta Ann, its revenue rose 4.8% to RM222.15mil for the three months to March 2015 from RM211.82mil in the previous corresponding period, while its EPS fell to 7.31 sen from 7.74 sen previously. The company had proposed an interim dividend of 10 sen per share for the quarter in review.

“The main factor for the lower profit was the drop in the prices of oil palm FFB and CPO despite a 28% higher CPO sales volume. Compared to the corresponding quarter in 2014, average FFB and CPO prices were 16% and 13% lower respectively. For the timber sector, though the sales volumes were lower, the better average selling prices for plywood and export logs which increased by 6% and 16% respectively, generated a higher profit margin for the sector,” Ta Ann said.