United Plantations posts higher profit in Q1, says outlook is difficult to predict
23.04.2020 (The Star Online) - KUALA LUMPUR: United Plantations Bhd
(UP) posted improved net profit driven by higher palm oil prices in the first quarter, but said its performance for the rest of the year is difficult to predict due to the novel coronavirus (Covid-19) havoc.
For the three months ended March 31, net profit jumped 21% to RM81.2mil.
Revenue slipped to RM318mil compared with RM322mil previously, UP said in a filing with Bursa Malaysia today.
The planter said its average selling price of crude palm oil (CPO) jumped to RM2,575 a tonne compared with RM2,203 a tonne in the same corresponding quarter last year.
Palm kernel price was also higher at RM1,734 compared with RM1,288 previously.
The improved prices boosted its plantation profit, but the group's refinery business saw a decline due to lower selling volume.
"Palm oil supply fundamentals have been strong with declining Malaysian stock numbers combined with lower than expected production," UP said.
"However, these bullish supply fundamentals have more or less been ignored by the Covid-19 uncertainties," it said.
The Covid-19 pandemic and “lock-downs” imposed by many countries have created serious concerns about food shortages due to logistical uncertainties worldwide.
This has resulted in price spikes in the short term as traders rushed to secure deliveries.
However, UP expects consumption in general to be lower in the food service industries in many countries as hotels, food stalls, restaurants and tourism have been brought to a near standstill.
"In the medium term, we foresee large negative economic consequences globally due to the consequences of the Covid-19 virus affecting demand and thereby lowering vegetable oil prices," UP said.
Meanwhile, the plunging price of crude oil is also expected to a have a negative impact on the vegetable oil market.
"The sharply lower mineral oil markets are expected to have a negative impact on the demand for vegetable oils due to expectations of lower Biodiesel production," it said."
Also, Ethanol production is expected to decrease as people stay at home, which is expected to add pressure to world corn markets as the US Ethanol production normally makes up 40% of the US corn usage."
UP said the group is in a strong position to weather the unprecedented challenges without having to impair any major assets.
"With the significant uncertainties related to the consequences of the Covid-19 pandemic, it is difficult to predict the results for 2020 as much can still happen," UP said.
"However, based on the prices contracted under our forward sales policy and with production improving due to large areas steadily coming into maturity from our replanted areas in Malaysia, the board of directors is cautiously optimistic that the results for the year will still be satisfactory based on current circumstances."