MARKET DEVELOPMENT
23-10-2001
‘Tax perks won’t benefit plantation firms much’
23 October 2001 (Business Times) - THE tax incentives proposed forresource-based industries including rubber and oil palm in the Budget 2002are expected to cause little impact on local plantation companies as themove will only benefit firms that plan to reinvest for expansion.According to analysts, the incentives are also more directed towards firmsinvolved in the downstream activities, such as oil palm refiners andrubber glove manufacturers, rather than plantation companies per se(except for those that own such facilities).Most of the analysts, however, still maintain an overweight rating for thesector which they view as “defensive and stable†amid the present economicslowdown.They also expect prices of crude palm oil (CPO) to strengthen towards theend of 2001 and early next year as the fundamentals are still strong.“The incentives announced during the Budget will not really affectplantation companies that much as I do not foresee many of themreinvesting in Malaysia,†an analyst from Arab-Malaysian Securities toldBusiness Times yesterday.Though many firms are interested to invest further in the country, theirplans have been hampered by the lack of sufficient, fertile landbankdomestically, she said.“If you look at the recent acquisitions in the palm oil industry, theywere largely done overseas, particularly in Indonesia,†she added.An analyst from Salomon Smith Barney (SSB), Ahmad Shariff, said plantationcompanies with manufacturing and refining facilities would benefit fromthe tax incentives announced by the Government last Friday.“But the impact is not going to be immediate; it would only happen whenthe companies start to reinvest,†he said.On a more general view, Ahmad said plantation is still a “very good,defensive sector†although there were slight worries about the situationin Afghanistan that might disrupt CPO shipments to West Asia, particularlyto Pakistan and India.“The fundamentals still point out to better prices of CPO,†he said.Ahmad also said that some recovery in CPO prices are likely to be seentowards the end of this year and early 2002, with the commodity’s priceexpected to average at RM1,100 per tonne for the whole of next year.An analyst from a local research firm said their forecast CPO price for2001 is at RM868 per tonne, with IOI Corp Bhd and PPB Oil Palms Bhd beingtheir favoured counters.“We like them because of their (low) PE, good growth and stability inincome,†she said.SSB’s Ahmad said IOI Corp is still one of the better plantation companiesas the group has more young oil palm trees which could produce higheryields compared to the others.On the Kuala Lumpur Stock Exchange (KLSE) yesterday, IOI Corp closed foursen lower at RM3.08 while PPB Oil Palms eased four sen to RM1.80.The KLSE’s plantation sub-index also fell 8.56 points to 1,407.78, in linewith the lower Composite Index which dropped 5.93 points to 609.09.Out of the 39 companies which made up the plantation sub-index only threeended higher, while 17 closed softer and 19 ended unchanged.In the spot CPO market, Malaysia’s October South CPO closed unchanged atRM850 a tonne.In the Budget unveiled last week, the Government has proposed to grant taxincentives for companies in the rubber, oil palm and wood based industriesthat reinvest for expansion purposes in a move to increase domesticinvestment in resource based industries.Among others, relevant companies stand to enjoy pioneer status with taxexemption of up to 85 per cent of statutory income for a period of 5years, or an investment tax allowance of up to 80 per cent within a periodof 5 years.
