Slight recovery in earnings plantation sector in Q2

CPO production is expected to rebound by 5%-10% in 2017

KUALA LUMPUR: It is still premature to expect a steep recovery in second quarter earnings (Q2 16) versus a full-year forecasts in the oil palm plantation sector after a dismal performance in the first quarter (Q1 16).

Maybank Investment Bank Research in a note said on Wednesday this was premise on  a still low Q2 output and the new 5% to 5.5% crude palm oil (CPO) export tax and windfall tax  for Peninsular Malaysia planters that kicked in from April. Price needs to punch higher to benefit pure upstream players, it said.

“We believe the CPO export tax and windfall tax mean that CPO price achieved by upstream planters in Malaysia could be lower by RM88 per tonne - RM159 per tonne than the actual CPO spot prices. Hence, while we generally expect a quarter-on-quarter (qoq) earnings recovery in Q2, it is premature to expect a sharp recovery in earnings relative to the full year earnings forecasts. June 2016’s fresh fruit bunch (FFB) output and CPO average selling price (ASP) are therefore crucial factors to watch.

We expect CPO price to peak either in June or July for the year,’’ the research house said.

Maintaining a neutral view on the sector, it noted that Q1 16 results were generally disappointing on below-expected output and low CPO ASP. The brokerage, however, was calling a buy on IOI Corp Bhd (contrarian), Ta Ann Holdings Bhd (TAH) and Sarawak Oil Plams Bhd (SOP).

Summing up the Q1 16 results, the research outfit said out of the 10 stocks under its coverage, 70% fell short (SIME, GENP, TAH, BPLANT, FGV, THP,TSH), just 10% was in-line (KLK), and 20% was above (IOI, SOP). 

The earnings disappointment came mainly from the upstream operations, which were affected by below-expected FFB output as yields fell sharply on lagged effect of 2015’s El Nino. Malaysia’s output was down 10% year-on-year (YoY)  (-33% qoq) while companies under our coverage posted varying FFB growth ranging from -23% YoY to +11% YoY . 

For those with Indonesian estates (namely TSH, SIME, GENP and KLK), the poor results were compounded by the US$50 per tonne CPO export levy which was introduced by the Indonesian government on July 16 , 2015.

Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 1
Cxense type: free
User access status: 3

Did you find this article insightful?


Next In Business News

Palm oil demand will be limited if prices continue to rise
Global oil benchmark Brent rises to highest since March
Cocoa prices steady as focus turns back to low exchange stocks
Nasdaq hits record high lifted by Tesla
Slack’s CEO is back in the passenger seat after Salesforce deal
Natural gas to contribute RM400mil to public finances over next decade
SCIB units secure EPCC contracts worth RM271mil
Flipkart’s digital payments firm PhonePe to raise US$700mil from existing investors
Astro posts RM164.5mil profit in Q3�
Bursa rallies with over 900 counters in positive zone

Stories You'll Enjoy