16/07/2008 (The Star Online) - Analysts believe it will favour owners with estates in east Malaysia. The newly adjusted windfall profit levy imposed on oil palm plantation companies effective yesterday will not impact significantly their earnings forecasts.

Industry analysts believe the levy would favour local planters with high exposure in east Malaysian estates compared with those with estates in Peninsular Malaysia.

They expect plantation companies with larger estates in east Malaysia such as IOI Corp Bhd, Asiatic Bhd and Hap Seng Plantations Bhd to see their estimated earnings adjusted upward by 1% to 2%, while those in the peninsula like Sime Darby Bhd and Kulim (M) Bhd would see earnings decline marginally by 1%.

The adjusted windfall profit levy on fresh fruit bunches (FFB) output was introduced to replace the windfall profit levy on crude palm oil (CPO) and crude palm kernel oil (CPKO) as well as the cess from the Cooking Oil Stabilisation Scheme (COSS).

The windfall profit levy will be collected directly at the plantation level based on the output of FFB.

Plantation Industries and Commodities Minister Datuk Peter Chin Fah Kui announced on Monday that the Finance Ministry stood to collect about RM2.3bil in windfall profit levy over the next 12 months based on the production of 17 million tonnes of CPO at an average threshold price of RM3,500 per tonne.

Under COSS, the Government collected RM1.37bil in special cess from oil palm planters between June 2007 and April 2008.

Aseambankers said in its latest report the revised windfall profit levy calculation formula would lift plantation owners' earnings by less than 2%.

Plantation analyst Ong Chee Ting said: “We estimate that at the current CPKO spot price of about RM4,250 per tonne, both Peninsular Malaysian and east Malaysian players will save about RM28.50 per tonne and RM14.25 per tonne of the CPO equivalent respectively.

“These are small savings relative to the present CPO price of about RM3,500 per tonne,” he added.

In addition, the windfall profit levy on FFB favours the more productive and efficient plantation companies which generate higher oil extraction rates as these companies would pay lower windfall profit levies per tonne of CPO produced.

While maintaining an underweight on the plantation sector, Aseambankers said plantation stocks were showing signs for a de-rating, decoupling slightly from crude oil, soyoil and rapeseed oil price trends.

The brokerage is maintaining a “sell” on IOI Corp, “fully valued” on Kuala Lumpur Kepong Bhd and a “hold” on both Sime Darby and TSH Resources Bhd. It also reiterates “buy” calls on small and mid-cap planters such as Hap Seng, Tradewinds Plantations Bhd and TH Plantations Bhd for relatively cheap valuations and lower foreign shareholdings.

On Bursa Malaysia yesterday, plantation giant IOI Corp lost 20 sen to close at RM6.50 and Sime Darby fell 15 sen to RM8.10.