Low CPO prices to affect planters’ earnings
The Star Online (17/04/2018) - PETALING JAYA: Malaysian oil palm planters’ earnings in the first quarter of this year will likely be weighed down by lower crude palm oil (CPO) and palm kernel (PK) prices.
Maybank IB Research, which has maintained its “neutral” outlook on the sector, said output recovery in the domestic oil palm sector has failed to compensate for the sharply lower average selling prices of CPO and PK.
Sarawak-based planters’ earnings are anticipated to be affected the most on a year-on-year (y-o-y) basis, given the significant decline in CPO output in the first quarter.
Despite the weak earnings expectations for the overall industry, Maybank IB Research indicated that IOI Corp Bhd
image: https://cdn.thestar.com.my/Themes/img/chart.png would likely be an outperformer in the first quarter.
The earnings of the listed plantation firms will tentatively be released next month.
“Our preliminary estimates, based on first-quarter CPO output release by the Malaysia Palm Oil Board, suggest first-quarter earnings are likely to come in mostly weaker compared to a year ago.” The brokerage said
Malaysia enjoyed a 13% y-o-y growth in CPO output to 4.5 million tonnes but this is not sufficient to offset the 21% decline in CPO average selling price to RM2,466 per tonne.
“This is exacerbated by even sharper fall in PK price by 33% y-o-y to RM2,166 per tonne. The only exception is IOI Corp, as its first-quarter output growth was high at 32% y-o-y,” said the research house in a note.
The CPO output growth in the first quarter has been uneven across the country. While Sabah planters witnessed the highest CPO output growth at 21% y-o-y, followed by Peninsular Malaysia’s 16% y-o-y expansion, the oil palm plantations in Sarawak saw a 5% y-o-y decline.
This was in part due to the high-base effect a year ago whereby growth in the first quarter of 2017 for Sarawak was a strong 29% compared with the first quarter of 2016.
On the prospects of the downstream players in the plantation sector, Maybank IB Research expects poor margins in the first quarter of this year for the refiners.
On the other hand, the oleo-chemical players are likely to sustain their good margins.
“Refiners will likely suffer from low-to-negative margins due to Malaysia’s imposition of CPO duty-free exemption since Jan 8, 2018 till end-April, which makes Malaysian refiners less competitive vis-a-vis Indonesian refiners in the export market.
“The refiners’ low utilisation rate in the first quarter of this year of 59% is also an indication of a tough business environment.”
Meanwhile, integrated players with oleo-chemical divisions such as IOI Corp and Kuala Lumpur Kepong Bhd
image: https://cdn.thestar.com.my/Themes/img/chart.png are likely to sustain their good margins enjoyed since the third quarter of 2017, given the stable raw materials cost.
The still-high utilisation rate of the oleo industry is a sign of promising prospects, said the research house.