Plantation companies maintain cautious stance

PETALING JAYA: Plantation companies are maintaining a cautious outlook for 2023, on the back of lower crude palm oil (CPO) and palm kernel (PK) prices and unresolved labour issues.

Chin Teck Plantations Bhd executive chairman Goh Wei Lei said average selling prices of CPO have been declining steeply.

“The financial performance for financial year 2023 (FY23) is expected to decline with the drop in CPO and PK prices from the historical high levels,” he said in the company’s 2022 annual report.

PublicInvest Research in a recent report said it expects a weaker earnings outlook for Chin Teck Plantations in FY23, given the steep correction in CPO prices.

“The group currently maintains a strong war chest with a total cash level of RM395mil with a debt free structure,” it said.

Kuala Lumpur Kepong Bhd (KL Kepong) chairman R.M. Alias believes the coming year will be a challenging one for the company’s cash flow.

“This is because our committed major oleochemicals expansions in Indonesia, Malaysia, China and Europe are currently on schedule. A cash outflow of RM1.5bil will be required over the coming two years.

“The plantation sector also has capital expenditure requirements to upgrade and renew some existing palm oil mills and infrastructure. However, our net debt at 40.7% is still able to cushion any impact from a shortfall in cash generation,” he said in KL Kepong’s latest annual report.

Meanwhile, Batu Kawan Bhd, which has a 47.73% stake in KL Kepong, said its core plantation business has benefited from high palm oil prices in 2022.

“CPO prices have softened since June 2022 to around RM4,000 per tonne, while the segment is facing the challenges of labour shortage and increased costs of fuel, fertilisers and agrochemicals.

“In the near term, CPO prices should remain at RM4,000 per tonne, supported by supply constraints and their price competitiveness against other edible oils,” said Batu Kawan under the “management discussion and analysis” segment of its latest annual report.

Kenanga Research in a recent report noted that edible oil prices have eased after mid-2022 on higher supply. However, it said demand, which has been subdued by Covid since 2020, is likely to recover in 2023.

“Inventory levels are thus expected to stay range-bound for much of 2023. Therefore, palm oil prices should stay relatively firm, and we maintain our 2023 and 2024 CPO price forecast at RM3,800 to RM3,500 per tonne.”

Kenanga Research added that rising production cost is a concern, as labour, fertiliser and energy costs have increased.

“Improving workers availability in Malaysia should mitigate some of the unit cost inflation as better 2023-2024 fresh fruit bunches output is anticipated.

“All in all, we expect margins to stay subdued with the possibility of upside capped somewhat.”

Meanwhile, MIDF Research noted that local CPO delivery price in December ended the year marginally lower at RM4,045.50 per tonne.

“For the last year, CPO prices managed to settle at an average daily and monthly price of RM5,131.9 per tonne and RM5,125.6 per tonne respectively.

“Overall, we expect Malaysian local delivery prices to be lower in 2023, ranging between RM3,000 and RM4,000, on expectation of normalisation closing stocks of two-to-2.1 million tonnes.”

Additionally, Hong Leong Investment Bank (HLIB) Research said it expects the stockpile to likely remain on a downtrend in the near term.

“Stockpile will likely remain on a downtrend in the next few months, on the back of seasonally low production cycle; CPO’s wide discount against soybean oil (of US$537 or RM2,318) per tonne; and China’s economy reopening, which will continue to lift palm oil exports.

“We maintain 2023 to 2024 CPO price assumptions of RM4,000 per tonne and RM3,800 per tonne, respectively.

“We believe CPO price will sustain at above RM4,000 per tonne over the next few months (possibly until the first quarter of 2023) and start trending down from the second quarter onwards,” said HLIB Research.

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