THE solid earnings reported recently by leading local plantation companies largely reflect the buoyancy of the crude palm oil (CPO) market last year, when prices rose by an average of 50% to RM1,343 per tonne compared with the lacklustre average price of RM893 per tonne in 2001.
Companies that have benefited enormously from last year's strong CPO prices include IOI Corporation Bhd, PPB Oil Palm Bhd and Golden Hope Plantations Bhd. All have reported strong earnings figures this week, beating the estimates of most industry analysts.
The latest success story is Guthrie Ropel Bhd, which has returned to the black with a group pre-tax profit of RM18.7mil for its financial year ended Dec 31, 2002, from a pre-tax loss of RM4.7mil the year before.
Plantation analysts contacted by StarBiz expect those companies, which had yet to announce their results, also to report strong figures similar to those of their counterparts.
Mayban Securities analyst Kenny Mak said the key drivers behind the exceptionally strong earnings of plantation companies were the firmer CPO prices and the higher growth in plantation companies' production of fresh fruit bunches (FFB) last year.
Plantation companies were able to register double or triple digit growth in their earnings in financial year 2002. However, for 2003-2004, I don't think these companies will continue to sustain such good growth rates as the CPO price is expected to stabilise at an average price of RM1,300 to RM1,400 per tonne, barring unforeseen circumstances, he said.
He believes the rate of growth in earnings will be slower in FY2003-2004, but plantation companies would continue to record higher profits based on the RM1,300 per tonne average CPO price, especially the highly efficient planters like United Plantations Bhd and IOI Corp.
(The price of CPO is currently trading above RM1,600 per tonne level)
I don't think the CPO price this year can touch the all time high registered during the 1997-1998 El Nino phenomenon, of RM2,700 per tonne, Mak said, adding that the price then plunged to as low as RM600 per tonne in year 2001 due the global edible oil oversupply situation.
Commenting on the first-half performance of plantation giant IOI Corp, OSK Research said the group's net profit of RM272.2mil, represented 52% of the research unit's full year forecast of RM523mil. Pre-tax profit almost doubled to RM414.2mil in the first half of the year, from RM215mil a year earlier.
All in, it was a good set of results, about 9% ahead of market expectations, driven primarily by the plantation division.
OSK Research said the first half year's planting operating profit of RM274mil makes up 63% of the group's total operating profit, and also represent 57% of the research unit's estimate of the full year plantation operating profit of RM478mil.
It added that IOI Corp's position as an industry leader was clearly demonstrated by its superior planting operation margin of 49%, which is well above Golden Hope's 29% for the same period.
The research unit is reiterating a Buy call on IOI Corp, with a revised target price of RM7.30 per share.
As for PPB Oil, OCBC Securities said the group's 2002 financial year result was also above market expectations, with net profit up four-fold to RM123.6mil on the back of a 69% increase in turnover to RM404.6mil.
Its operating margin of 38.8% recorded in the financial year just ended was also the highest rate achieved since PPB Oil's public listing in 1993.
For 2003-2004, OCBC Securities said PPB Oil's total CPO output was projected to grow between 7% and 11.8%, driven by a 1% to2% point increase in yield and a marginal 0.3%-point increase in its oil extraction rate.
Based on a projected CPO average price of RM1,400 per tonne this year, OCBC Securities has forecast a 5.1% increase in PPB Oil's group net profit for 2003 to RM132.6mil.
It is also projecting a rise in PPB Oil's 2004 earnings to RM146.6mil, based on an average CPO price per tonne of RM1,350.