01/06/2015 (The Star) - As expected, plantation companies posted disappointing sets of financial performances for the quarter ended March 31.

Some conglomerates which have a diversified income stream, managed to reduce the pressure on their profit margins as the average selling price of crude palm oil (CPO) dipped in the quarter from a year ago.

The CPO average price was at a high of RM2,410 per tonne in the first quarter of last year compared with the average of RM2,221 per tonne in the latest quarter.

The commodity for which Malaysia is the world’s second largest producer, did not improve much at RM2,216 at yesterday’s closing.

Contributing factors included the floods in the fourth quarter of last year that ravaged plantations of companies located in the east coast of the peninsula.

Going forward, higher inventories and lower export volumes, based on numbers released in April, do not improve the bleak outlook for the sector.

Analysts have yet to identify any catalysts that will raise the prospect of higher CPO prices in the near-term.

Recall that the Malaysian palm oil inventories posted the biggest jump since August last year with a gain of 17.6% for April.

Besides Felda Global Ventures Holding Bhd (FGV), another heavyweight to look at is IOI Corp Bhd.

For its third quarter ended March 31, it posted a net loss of RM188mil compared with a net profit of RM2.2bil in the previous corresponding period.

Besides the poor CPO price, IOI’s disappointing result was also contributed by net foreign currency translation losses due to foreign currency denominated borrowings.

Public Investment Bank reviews its CPO forecast of RM2,550 per tonne with a downside revision bias, as it thinks that it highly unlikely to be achieved in the coming months.

“Pending our new CPO price assumptions, we maintain our neutral outlook on the plantation sector,” it says.

Bank Islam Securities, also maintained a neutral rating on the sector due to lack of catalysts with a “hold” call on Kuala Lumpur Kepong, FGV, Batu Kawan, IOI Corp, IJM Plantations, Genting Plantations and Hap Seng Plantations.

On demand, Bank Islam, in its recent report, says most countries are still registering higher month-on-month demand with China almost doubled its orders to 262,713 tonnes.

“European Union was also seeing some restocking after three months of consecutive declines in export volumes.

“However, this was offset by lower imports from India as it decreased by 71% to 87,391 tonnes. Although the discount to soybean prices has increased, it is still relatively low as compare with its previous records,” it says adding that it is maintaining CPO expectations at RM2,400 for 2015.

Meanwhile, JF Apex Securities expects the positives of higher palm oil demand in the coming months to be offset by the prospects of growing palm oil production and higher palm oil inventory.

The research houses top pick for the sector is Genting Plantations while placing a “hold” call of target price for KLK, FGV, IOI and IJM Plantations.