ANALYSTS continue to be bullish on the outlook of the plantation sectordespite the lower-than-expected earnings registered by some of the biggestplantation companies in the country.

Yesterday, the Kuala Lumpur Stock Exchange (KLSE) Plantation Index fell8.37 points to 1,642.35 points, despite the bellwether KLSE CompositeIndex (KLCI) ending 11.35 points higher to 694.22 points, which waslargely due to disappointing results announced by plantation companieslast week.

Going forward, the analysts said, the recovery in crude palm oil (CPO)prices will spark a rebound in these companies' bottom lines, which isexpected to take effect by 2002.

Plantation stocks, which have been in the doldrums lately, are alsoexpected to recover soon as investors focus on improving CPO prices.

"We expect growth of agriculture in the first quarter to remain strong,underpinned by sustained output in the palm oil industry," says a researchreport.

Analysts said even though CPO production failed to expand tremendously,its exports remained high.

CPO production only rose by 17.2 per cent in the second quarter 2001,which was slower than the 28 per cent in the first quarter this year.

"In addition to strong CPO export, the growth momentum in the sector isalso supported by higher output of palm kernel.

Furthermore, July palm oil prices ending on a bullish tone and soyabeanproduction forecast being lowered by the US Department of Agriculturewould prompt growth in the sector," an analyst said.

Plantation companies that have released their results so far are GoldenHope Plantations Bhd, Kuala Lumpur Kepong Bhd, IOI Corp Bhd and KumpulanGuthrie Bhd.

These four companies carry a combined weightage of some 54 per cent on theKL Plantation Index.

"Earnings results of these plantations companies came in lower thanexpected, but due to the bullish forecast of the sector, we have between abuy and an overweight recommendation on plantation companies such as KLKepong and Golden Hope," another analyst said.

For the fourth quarter ended June 30 2001, cash-rich Golden Hope made anet profit of RM57.829 million from RM325.93 million in the previousfinancial year with an earnings per share (EPS) of 5.46 sen.

Multex Global Estimates consensus of 19 analysts had forecast the group tomake a RM86 million net profit with an EPS of 7.7 sen.

Despite the disappointing results, forecast figures for 2002 are high witha net profit of RM173.79 million and an EPS of 17.10 sen.

For 2003, Golden Hope is expected to perform even better with a forecastnet profit of RM212.82 million and an EPS of 20.97 sen.

Meanwhile, KL Kepong, which carries the biggest weightage on the subPlantation Index, made a lower profit for the third quarter endingSeptember 2001.

The company registered a RM14.496 million profit compared with RM27.287million in the previous corresponding quarter.

For the first nine months of its financial year, it only made RM43.688million in net profit compared with RM155.48 million previously.

In spite of this, analysts said KL Kepong is among the best stocks in theplantation sector.

The counter is expected to outperform the market in line with the reboundof CPO prices as strong earnings prospects for plantation companies willenable share prices to trend upwards.

Kumpulan Guthrie and IOI Corp also posted lower profits.

Kumpulan Guthrie, the third-biggest plantation company in the country,suffered losses of RM24.5 million for the first half of its financial yearcompared with RM15.9 million previously due to lower palm oil prices.

Yesterday, Kumpulan Guthrie dragged the Plantation Index down as it lost27 sen to close at RM2.23 a share.

IOI Corp, currently in battle with Sime Darby Bhd for control over palmolein manufacturer Palmco Holdings Bhd, also saw profits for the financialyear ended June 2001 fall by 3.93 per cent to RM291.13 million fromRM303.03 million previously.

So far, plantation stocks have been the most resilient in weathering themood swings of the market.

But now, analysts said, investors are cautiously trading these stockswhile waiting for CPO prices to stage an impressive rebound.

28 August 2001Business Times