04/09/20222 (The Borneo Post) - Plantation sector earnings have peaked, AmInvestment Bank Bhd (AmInvestment Bank) opines, following the second quarter of 2022 (2Q22) results which were largely within consensus but above the research firm’s expectations.

According to AmInvestment Bank, the exceptions were Sime Darby Plantation Bhd (SDP), which fell short of consensus and TSH Resources Bhd (TSH), which surpassed street expectations.

“SDP’s upstream division was hit by high costs of CPO production in Malaysia and Indonesia’s ban on crude palm oil (CPO) exports in May,” the research firm recapped.

AmInvestment Bank noted that on the flip side, TSH’s net profit grew by 61 per cent quarter on quarter (q-o-q) to RM76 million in 2Q of financial year 2022 (2QFY22) as it benefited from a low effective tax rate and a 21 per cent q-o-q surge in fresh fruit bunch (FFB) output.

“Going forward, we reckon that plantation profits would be soft due to lower CPO prices and higher production costs.

“In addition, CPO prices may ease on rising supply and soft demand from India and China.

“India has ample reserves of edible oils at the ports and pipelines while certain places in China are affected by Covid-19 lockdowns.

“India’s inventory of edible oils stood at 2.3 million tonnes as at August 1, 2022 versus 1.7 million tonnes as at August 1, 2021.”

Meanwhile, AmInvestment Bank gathered that average Malaysian Palm Oil Board (MPOB) spot price was a high RM6,552 per tonne in 2Q22 compared with RM4,208 per tonne in 2Q21 and RM6,051 per tonne in 1Q22.

“CPO prices are hovering between RM4,000 per tonne and RM4,200 per tonne presently.”

Although FFB production is expected to increase in the second half of 2022 (2H22), the research firm believed that this will be negated by the impact of weaker CPO prices.

“In addition, we reckon that production costs would be higher in 2H22 due to increased costs of fertiliser and wages.

“Comparing 2022E against 2021, we believe that fertiliser costs have doubled.”

https://www.theborneopost.com/2022/09/04/plantation-sector-earnings-have-peaked-analysts/