MARKET DEVELOPMENT
Planters Set to Do Better Amid Recovery of CPO Prices
Planters Set to Do Better Amid Recovery of CPO Prices
08/12/2015 (The Star) - Plantation companies are expected to report a better performance in the fourth quarter supported by the recovery in crude palm oil (CPO) prices, said HLIB Research.
The research firm, which has maintained its neutral call on the plantation sector following a “disappointing” third-quarter financial year 2015 (3Q15) results, noted that CPO local delivery average price in October and November 2015 was up by 5.7% since 3Q15 based on the Malaysian Palm Oil Board data.
“Besides that, production is likely to peak on Oct 15, before entering into seasonally low production period, which would help to support production in 4Q15,” the firm said in a report.
According to HLIB, most pure upstream plantation companies reported weaker results due to lower CPO average selling prices (ASP) despite better fresh fruit bunch production growth.
On the other hand, integrated players reported better performance from downstream operations, which helped to mitigate the weaker upstream business. “... it was a disappointing quarter with the majority of the plantation companies posting weaker than expected results in 3Q15 except for Kuala Lumpur Kepong (KLK) and IOI Corp Bhd which reported results that were in line with our expectations.”
Sime Darby Bhd’s results were, meanwhile, dragged by the underperformed industrial and motor divisions that suffered from slowdown in economy and weakening ringgit.
On production growth, the firm said that most plantation companies reported better year-on-year production in 3Q15 except for Sabah based players. “IJM Plantations (IJMP) and TSH Resources (TSH) reported year-on-year decline of 10.4% and 8.1% respectively in FFB production for their Sabah estates, likely due to the lagged impact from dry weather in 1Q15.”
All companies reported lower quarterly and yearly CPO ASP in 3Q15. However, companies with Indonesian exposure such as Genting Plantation, IJMP, KLK, TSH and Sime reported sharper decline in CPO ASP due to dilution from lower ASP in Indonesia with the implementation of palm oil export levy of US$50 per tonne in July.
Catalysts for the sector moving forward include the implementation of higher biodiesel mandates in Indonesia and Malaysia, and uncertainties in the weather, which would result in supply distortion.
Risks, however, include lower soybean prices and hence prices of CPO plus the likelihood of India imposing higher import duty on CPO.
The research firm, which has maintained its neutral call on the plantation sector following a “disappointing” third-quarter financial year 2015 (3Q15) results, noted that CPO local delivery average price in October and November 2015 was up by 5.7% since 3Q15 based on the Malaysian Palm Oil Board data.
“Besides that, production is likely to peak on Oct 15, before entering into seasonally low production period, which would help to support production in 4Q15,” the firm said in a report.
According to HLIB, most pure upstream plantation companies reported weaker results due to lower CPO average selling prices (ASP) despite better fresh fruit bunch production growth.
On the other hand, integrated players reported better performance from downstream operations, which helped to mitigate the weaker upstream business. “... it was a disappointing quarter with the majority of the plantation companies posting weaker than expected results in 3Q15 except for Kuala Lumpur Kepong (KLK) and IOI Corp Bhd which reported results that were in line with our expectations.”
Sime Darby Bhd’s results were, meanwhile, dragged by the underperformed industrial and motor divisions that suffered from slowdown in economy and weakening ringgit.
On production growth, the firm said that most plantation companies reported better year-on-year production in 3Q15 except for Sabah based players. “IJM Plantations (IJMP) and TSH Resources (TSH) reported year-on-year decline of 10.4% and 8.1% respectively in FFB production for their Sabah estates, likely due to the lagged impact from dry weather in 1Q15.”
All companies reported lower quarterly and yearly CPO ASP in 3Q15. However, companies with Indonesian exposure such as Genting Plantation, IJMP, KLK, TSH and Sime reported sharper decline in CPO ASP due to dilution from lower ASP in Indonesia with the implementation of palm oil export levy of US$50 per tonne in July.
Catalysts for the sector moving forward include the implementation of higher biodiesel mandates in Indonesia and Malaysia, and uncertainties in the weather, which would result in supply distortion.
Risks, however, include lower soybean prices and hence prices of CPO plus the likelihood of India imposing higher import duty on CPO.