Headwinds seen for planters despite growth

PETALING JAYA: Early quarterly results by several plantation companies reveal that some have met with market expectations of 34% year-on-year (y-o-y) growth in earnings for second-quarter 2022 (2Q22).

The planters generally have benefited from higher prices of crude palm oil (CPO) and palm kernel (PK) oil in the quarter under review.

CepatWawasan Group Bhd’s net profit for the second quarter ended June 30, 2022 surged 67% year-on-year (y-o-y) to RM15.8mil or an earnings per share of 5.12 sen.

Its revenue was also up by 32% y-o-y to RM107.3mil.

“The achievement was mainly due to higher average selling prices of CPO, PK, fresh fruit bunches (FFB) and empty fruit bunches (EFB) oil by 59%, 46%, 67% and 34%, respectively.

“The production of CPO, PK and FFB, however, decreased by 11%, 12% and 16%, respectively, but EFB oil production increased by 18%,” said Cepatwawasan in a filing with Bursa Malaysia yesterday.

The group said headwinds like falling CPO prices due to a policy shift in Indonesia, labour shortages, an increase in fertiliser prices and the new minimum wage of RM1,500 will impede the group’s performance in the following quarters.

“CPO prices have fallen more than 40% from their recent peak of RM6,324 in June,” added Cepatwawasan.

Last week, United Plantations Bhd (UP) posted a 2Q22 net profit growth of 36% y-o-y to RM184.6mil, while revenue rose 46% y-o-y to RM701mil.

UP stated that CPO prices in general have been negatively affected by global recession fears, Indonesia’s backlog of CPO stockpiles and the Russian-Ukraine war that has affected the supply of crude oil, natural gas, fertilisers, wheat and oilseeds.

Accordingly, market expectations are for the sector to post a lower earnings growth of 25% in 3Q22.

MIDF Research said CPO production levels for 2022 are expected to be lower than last year, underpinned by low fertiliser application attributed to the labour shortage, which was compounded by the impact of wet weather last year.

“This is proven in the latest data from the Malaysian Palm Oil Board, which showed that even though production improved by 5.8% month-over-month to 1.55 million tonnes, on a y-o-y and year-to-date basis, it still retracted by 3.8% and 1.1%. In fact, June’s FFB yield dropped by 7.5%,” the research house told Starbiz.

MIDF projected that palm oil production would see another soft patch next year if labour shortages continue to bear down the industry, as this would disrupt the maximisation of fertiliser activities in the second half of 2022.

This sentiment was echoed by UP in its filing with Bursa Malaysia last week.

“If there is no initiative by the government to recruit workers, it will become impossible to avoid further crop losses in 2022 as the acute labour shortages have gone beyond the ‘breaking point’ for many plantation companies,” the group stated.

MIDF expects CPO prices to stabilise at around RM4,000 to RM5,000 per tonne once the market assessed inflationary pressures worldwide and recognised supply constraints for soybean and sunflower oil as well.

“Price stabilisation will also depend on Indonesia’s implementation of B35 biodiesel at the end of this month, which will spur domestic palm oil consumption.

“Apart from that, we believe the widening discount between CPO and soyoil price differential would make CPO more competitive,” it added.

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