Steady earnings ahead for palm planters

Most of the plantation companies’ results in Q2 were within our expectations, with the anticipation coming from the higher CPO prices, said an analyst.

PETALING JAYA: Plantation players, which saw strong earnings in the second quarter (Q2), will continue to enjoy the earnings uptrend in the following two quarters as crude palm oil (CPO) prices remain buoyant.

In the recent quarterly season, companies such as Genting Plantations Bhd, Kuala Lumpur Kepong Bhd, Sime Darby Plantation Bhd and Hap Seng Plantations Holdings Bhd saw impressive earnings with net profit jumping 362%, 113%, 63% and 38%, respectively.

Meanwhile, FGV Holdings Bhd saw its profits rise by more than 16 times and Boustead Plantations Bhd rose more than six times.

Analysts have generally raised their earnings forecasts for plantation companies. But given the high commodity prices, the soaring revenues did not come as a big surprise.

“Most of the plantation companies’ results in Q2 were within our expectations, with the anticipation coming from the higher CPO prices.

“Having said that, Sarawak Oil Palms Bhd’s earnings came in above our and consensus’ expectation in Q2 with the very strong upstream performance, and we reckon that it was also supported by the downstream operation with the right purchasing timing of raw materials in May-Jun 2021,” an analyst told StarBiz.The analyst expects this will also have some spillover effect for the company in early Q3.

Sarawak Oil Palm Bhd plantation

Sarawak Oil Palms posted a 156.4% year-on-year increase in net profit to RM98.3mil during the quarter while revenue rose 51.6% to RM949mil.

In a recent report, Maybank IB Research noted that Sarawak Oil Palms will continue to reap the benefits of high spot CPO prices as it has minimal forward sales.

With CPO prices expected to remain strong for the rest of the year, planters will likely unveil a few more successive quarters of healthy profits.

“Our CPO assumptions for 2021 and 2022 are at RM3,300 and RM2,800 per tonne, respectively.

“Talking about the strong earnings leveraging on the high CPO prices, we expect this would be sustainable for the upcoming two quarters,” the analyst added.

Last week, the Malaysian Palm Oil Board (MPOB) said it expected CPO prices to remain stable at above RM4,000 per tonne for Q3 before weakening in Q4 due to the expected recovery in production.

However, it estimated that CPO production for 2021 – at around 18 million tonnes – would still be lower than in 2020, partly caused by limited labour supply arising from the national border closure and less availability of fresh fruit bunches (FFB).

MPOB logo

Note that MPOB’s August 2021 stockpile grew 25% month-on-month to 1.87 million tonnes, ahead of estimates of 1.74 million tonnes, due mainly to seasonal production recovery, lower-than-expected exports and higher-than-expected imports.

Still, most research houses are of the view that CPO prices will remain supported. CGS-CIMB Research is looking at an average of RM3,700 per tonne this year, noting a potential upside as CPO price has averaged at RM4,150 in the first eight months.

Meanwhile, Maybank IB has raised its CPO average selling price for 2021 to RM3,500 per tonne from RM3,100 previously, and to RM2,800 for 2022-2023 from RM2,600 previously.