LISTED plantation companies are likely to bear the brunt of the recent ringgit de-peg.
Most brokerages have indicated that plantation companies with large US dollar-based revenue like IOI Corp Bhd, Kuala Lumpur Kepong Bhd (KLK), Golden Hope Plantations Bhd (GHope), PPB Oil Palms Bhd (PPBOP) and IJM Plantations Bhd will be among the potential losers.
Plantation companies contacted by StarBiz declined to comment on the move, given the absence of details on the ringgit de-pegging by Bank Negara.
An industry observer said: The ringgit de-peg spells bad news for the sector.
This is especially when commodity analysts had recently turned bullish on the plantation sector. They had expected a potential upswing in crude palm oil (CPO) prices, due to recent poor weather conditions in major oilseed producing countries.
The observer said: If the ringgit is put at 3.60 (to the US dollar), it will represent 20 sen or 5% appreciation. This will translate into a RM70 reduction on CPO price based on RM1,400 per tonne level. Just imagine the impact on CPO prices if the ringgit appreciates by another 8% to 10%.
The earnings of pure plantation players like PPBOP, KLK and GHope will be reduced, but I believe that IOI Corp somehow will be less affected due to its diversified businesses, including property and other downstream activities.
He expects the full impact of the ringgit de-peg on plantation companies would only be felt in September and October as most of them had sold forward or locked in their CPO sales at good price levels.
On a more positive note, the industry observer said oil palm planters would experience lower production costs as their fertilisers and chemical-related products sold in US dollars would be cheaper.
Mayban Securities, in its recent notes, said the plantation sector would see negative topline growth due to the US-denominated selling prices. (CPO, in the Rotterdam market, is sold in US dollars.)
Its initial estimates reveal an impact of between 6% and 13% on earnings of plantation companies for every RM100 change in selling prices.
However, Mayban Securities said plantation companies would be enjoying interest savings on foreign denominated loans, capital expenditure and imported production costs such as fertilisers.
One local bank-backed research house expects the earnings per share of IOI Corp, IJM Plantations, KLK, PPBOP and GHope to drop by between 5% and 23%.
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