23/11/2023 (The Star Online), Petaling Jaya -  Kuala Lumpur Kepong Bhd (KLK) is keeping a cautiously optimistic outlook depending on the price projections for crude palm oil (CPO).

The group noted that CPO prices had traded within a tight range of between RM3,700 per tonne and RM4,000 per tonne from July to September.

It said uncertain weather conditions had also raised concerns about production and price expectations, particularly for the latter part of 2023 and into next year.

The integrated plantation group released its financial results for the fourth quarter ended on Sept 30 (4Q23), as well as its cumulative results for the whole of FY23.

The three months ended Sept 30 saw net profit plunge by 74.8% year-on-year (y-o-y) to RM116.3mil as revenue fell 17.2% y-o-y to RM5.78bil.

KLK attributed the weaker performance to a number of factors plaguing its various segments, exemplified by the decline in average CPO and palm kernel selling prices, lower CPO sales volume and a lower unrealised gain of RM7.2mil from fair value changes on outstanding derivative contracts.

Of particular note, its manufacturing segment posted a loss of RM102.1mil, which contrasted against the profit of RM164.2mil achieved in the same quarter last year, impacted by a drop in revenue by 19.7% y-o-y.

Losses were incurred by the oleochemical division – largely attributable to the reduced profit margin, as well as a one-time restructuring cost of RM70.6mil by its Europe operations.

KLK’s property division also saw lower net profit for the quarter despite recording a higher revenue, mainly due to recognition of development profits from phases with lower gross margin.

Cumulatively for the financial year ended Sept 30 (FY23), the scenario was similar as net earnings fell 61.5% y-o-y to RM834mil on the back of a 12.9% y-o-y decrease in turnover to RM23.6bil.

In its filing with Bursa Malaysia yesterday, KLK said besides lower CPO selling prices and higher CPO costs, a net loss of RM81.9mil from fair value changes on outstanding derivative contracts, coupled with provision for impairment of plasma receivables amounting to RM60.5mil were contributing factors to the lower earnings. According to the group, the silver lining came when its 4Q23 results were put against the preceding quarter’s, as net profit jumped 38.3% from RM84.1mil.

This was driven by a 13% quarter-on-quarter (q-o-q) growth in revenue from RM5.1bil.

The primary factors were higher q-o-q CPO and palm kernel sales volumes, lower CPO production costs and a fair value gain of RM33.9mil on valuation of unharvested fresh fruit bunches.

Commenting on its projections for CPO prices, the group said global oilseeds production is set to grow to 660 million tonnes mt next season - compared to 630 million tonne in the current season - with growth coming mainly from soybeans which remains competitive with palm oil.

“This casts doubts on CPO price optimism in the short term. A rangebound market is expected going forward, as demand for palm oil is set to remain subdued, still beleaguered by the weak macroeconomics environment,” it said.

Incidentally, KLK’s subdued performance this fiscal year also influenced its associate Batu Kawan Bhd, who owns 47.43% of the former.

Batu Kawan’s 4QFY23 net earnings similarly fell 76.3% y-o-y to RM52.8mil, as turnover reduced by 16.8% to RM6bil.

https://www.thestar.com.my/business/business-news/2023/11/23/cpo-prices-to-affect-klk-earnings