Better outlook for planters
11.09.2018 (The Star Online) - PETALING JAYA: The earnings of plantation companies are expected to recover in the second half of this year after the sector took a hit in the last quarter.
The results of most local plantation were down in the second quarter due to the triple-whammy of low crude palm oil (CPO) prices, low output and high cost of production.
Compared with their regional peers who delivered decent results, Malaysian plantation companies lagged behind in terms of financial results.
According to Maybank Investment Bank Research, out of the 10 plantation stocks under its coverage, only 20% was in line while the rest fell short of its Q2 2018 result expectations.
The core profit of plantation stocks under its coverage was down 36% year-on-year (y-o-y) and fell 24% quarter-on-quarter (q-o-q) for Q2, 2018. It has also dropped 36% y-o-y for the first half 2018, said the research unit in its sector report.
Maybank IB Research also said: “Between Q3 and Q4 2018, the local planters’ earnings will likely peak in Q4 on higher output, higher CPO price and lower cost as fertilising work in the estates would be minimal in the final quarter 2018.
“But, the Q3 earnings will not look as promising as Q4 given the still weak spot CPO and palm kernel average selling prices,” it pointed out.
CPO price in Q3 to date has averaged at RM2,198 per tonne, down 18% y-o-y and lost 7% q-o-q respectively.
Apart from the existing ample palm oil supply amid seasonally high output months in second half 2018, Maybank IB Research said the escalating trade tension between the United States and China, expectation of a good soybean harvest in the United States and weak demand from India due to its high import taxes and weak rupee have contributed to a lacklustre near-term CPO price outlook.
“The only positive right now is the high crude oil price which boosted discretionary demand for palm biodiesel,” it said adding that Indonesia held the key in supporting CPO price.
“As long as the fossil fuel price remains higher, it will provide a good floor price support for CPO.
“We anticipate CPO price to make its seasonal price recovery in Q4 2018 as the market price forward weaker supply in Q1 2019,” added Maybank IB Research.
It is also maintaining the CPO average selling price forecast at RM2,450 per tonne for 2018 for now but “recognises that earnings risk is on the downside if spot CPO price do not recover strongly from here on”.
UOB Kay Hian Research, in its latest report, said CPO prices could have hit the bottom this year and further downside risk is limited.
“However, we still reckon that this is still not a good time to enter as there is no strong catalysts to lift CPO prices in the mid-term,” it added.
It also had not made changes to its average CPO price assumptions of RM2,400 per tonne for 2018 and RM2,500 per tonne for 2019.
“It is our view that CPO prices could trade in the narrow range of RM2,250 to 2,500 per tonne towards the year-end, and possibly continue to trade at this level until first half of 2019.”
Among the key factors that will re-rate the plantation sector include the potential El Nino occurance, higher-than-expected biodiesel production and worse-than-expected labour shortage in Malaysia.
Meanwhile, CGSCIMB is maintaining a neutral stance on the plantation sector.
“We project CPO prices trading within RM2,100 to RM2,400 per tonne in September.
“The key upside and downside risks include higher/lower CPO prices. Our top regional picks are Genting Plantations Bhd
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, Wilmar International Ltd and First Resources Ltd,” it added.
CGSCIMB said, in its palm oil preview for August 2018, that the average CPO price fell 1.4% month-on-month (m-o-m) to RM2,183 per tonne in August.
This is due to concerns over weak demand for palm oil partly caused by India’s move to raise import duties on CPO by 14% points to 44%, resulting in lower palm oil exports to the country and strong palm oil supplies in Indonesia.
CGSCIMB also anticipated higher palm stockpile for August is negative for CPO prices, though this is partly offset by Indonesia’s plan to raise biodiesel usage that will boost domestic demand for palm oil in Indonesia and reduce palm oil inventory.
Findings from a survey of 20 plantation areas by the CIMB Futures team revealed that local CPO output will likely grew by 11.8% m-o-m to 1.681 million tonnes in August 2018.
Palm oil exports are expected to rise by about 2% m-o-m, based on export statistics released by cargo surveryors, SGS, ITS and Amspec Malaysia.
Overall, CGSCIMB estimated that Malaysian palm oil inventory would likely increase 11% m-o-m to 2.46 million tonnes as at end-August.
In addition, the seasonal uptick in yields is also expected to boost fresh fruit bunch output in August.
“Our survey revealed that estates in Sarawak posted the highest m-o-m production increases, followed by those in Peninsular Malaysia. Sabah estates posted the smallest m-o-m rises in production,” it added.
The Malaysian Palm Oil Board is expected to release the latest August palm oil statistics tomorrow.
Read more at https://www.thestar.com.my/business/business-news/2018/09/11/better-outlook-for-planters/#cSKeJKzI2zC0S4ds.99