MARKET DEVELOPMENT
Upstream Plantation Stocks Likely To See \"Flattish to Weaker\" Earnings Growth
Upstream Plantation Stocks Likely To See \"Flattish to Weaker\" Earnings Growth
14/08/2013 (The Sun Daily) - Maybank Investment Bank Bhd (Maybank IB) expects the upcoming results season to be a lack luster one for upstream plantation stocks as lower sales volume and higher plantation costs weigh in on earnings.
"We expect most upstream plantation stocks to post flattish-to-weaker quarter-on-quarter (QoQ) profits," the research firm said.
Refining margins are expected to be lower QoQ due to low crop season while margins for oleochemicals and specialty fats players are likely to stay healthy.
"Coupled with persistently low CPO price, the sector is likely to underperform in the third quarter of 2013," it said.
The note to investors went on to say that sales volume in Q2 2013 is expected to be weaker QoQ as Q1 2013 sales benefited from brought forward palm oil stocks (of 2.63 million tonnes as at Dec 31, 2012 ) as the industry experienced a bumper harvest in Q4 2012.
"As for fresh fruit bunch (FFB) production, 56% of the stocks under our coverage reported a decline in quarterly production in Q2 2013 while 33% reported growth," it said.
According to the report, five out of nine plantation companies under coverage saw production decline, while only three managed to produce more QoQ.
Decliners were Genting Plantations Bhd (-14.7%), KL Kepong Bhd (-13.0%), IOI Corp Bhd (-11.1%), Sime Darby Bhd (-9.3%), and TSH Resources Bhd (-5.7%). Gainers were led by Sarawak Oil Palms Bhd (+10.4% QoQ), TH Plantations Bhd (+9.3%), and Ta Ann Holdings Bhd (+4.7%).
Maybank IB said given Felda Global Ventures Holdings Bhd's relatively old oil palm tree profile, it posted flattish quarterly production.
On a year-on-year (YoY) comparison, it said all plantation stocks except Sime Darby posted higher production as the industry was generally affected by tree stress in Q2 2012.
Maybank IB said spot crude palm oil average selling price in Malaysia has been flattish QoQ at RM2,324 a tonne (-27.8% YoY) in Q2 2013.
"Combined with a lower quarterly sales volume, we expect plantation stocks to generally post lower quarterly revenues in Q2 2013," it said.
Maybank IB also said considering that Q2 2013 fertilisation activities may have picked up given the relatively dry period experienced during the quarter fertiliser costs, which are expensed out when incurred, may lead to higher plantation costs in Q2 2013.
"We expect Malaysian refiners' margin to suffer sequential quarter decline in refining margins," it said.
Refiners in peninsula should experience razor thin-to-negative margins in 2Q13, largely seasonal in nature due to low crop season as evident by the low refinery utilisation rates which averaged 68.5% in Q2 2013, Maybank IB explained.
Nonetheless, refiners in Sabah and Sarawak should do better as they continue to enjoy RM80- RM100 price discounts, albeit lower compared with a quarter ago.
As for oleochemicals and specialty fats players, Maybank IB anticipates healthy margins to continue as feedstock prices (ie palm oil and palm kernel oil) are stable. Utilisation rates of oleo-chemical players were high at 78.6% on average in Q2 2013.
"We expect most upstream plantation stocks to post flattish-to-weaker quarter-on-quarter (QoQ) profits," the research firm said.
Refining margins are expected to be lower QoQ due to low crop season while margins for oleochemicals and specialty fats players are likely to stay healthy.
"Coupled with persistently low CPO price, the sector is likely to underperform in the third quarter of 2013," it said.
The note to investors went on to say that sales volume in Q2 2013 is expected to be weaker QoQ as Q1 2013 sales benefited from brought forward palm oil stocks (of 2.63 million tonnes as at Dec 31, 2012 ) as the industry experienced a bumper harvest in Q4 2012.
"As for fresh fruit bunch (FFB) production, 56% of the stocks under our coverage reported a decline in quarterly production in Q2 2013 while 33% reported growth," it said.
According to the report, five out of nine plantation companies under coverage saw production decline, while only three managed to produce more QoQ.
Decliners were Genting Plantations Bhd (-14.7%), KL Kepong Bhd (-13.0%), IOI Corp Bhd (-11.1%), Sime Darby Bhd (-9.3%), and TSH Resources Bhd (-5.7%). Gainers were led by Sarawak Oil Palms Bhd (+10.4% QoQ), TH Plantations Bhd (+9.3%), and Ta Ann Holdings Bhd (+4.7%).
Maybank IB said given Felda Global Ventures Holdings Bhd's relatively old oil palm tree profile, it posted flattish quarterly production.
On a year-on-year (YoY) comparison, it said all plantation stocks except Sime Darby posted higher production as the industry was generally affected by tree stress in Q2 2012.
Maybank IB said spot crude palm oil average selling price in Malaysia has been flattish QoQ at RM2,324 a tonne (-27.8% YoY) in Q2 2013.
"Combined with a lower quarterly sales volume, we expect plantation stocks to generally post lower quarterly revenues in Q2 2013," it said.
Maybank IB also said considering that Q2 2013 fertilisation activities may have picked up given the relatively dry period experienced during the quarter fertiliser costs, which are expensed out when incurred, may lead to higher plantation costs in Q2 2013.
"We expect Malaysian refiners' margin to suffer sequential quarter decline in refining margins," it said.
Refiners in peninsula should experience razor thin-to-negative margins in 2Q13, largely seasonal in nature due to low crop season as evident by the low refinery utilisation rates which averaged 68.5% in Q2 2013, Maybank IB explained.
Nonetheless, refiners in Sabah and Sarawak should do better as they continue to enjoy RM80- RM100 price discounts, albeit lower compared with a quarter ago.
As for oleochemicals and specialty fats players, Maybank IB anticipates healthy margins to continue as feedstock prices (ie palm oil and palm kernel oil) are stable. Utilisation rates of oleo-chemical players were high at 78.6% on average in Q2 2013.