Weaker Q4 earnings seen for planters

CGS-CIMB Research says the sector lacked catalysts, adding it remained supported by a decent dividend yield of 3%.

PETALING JAYA: Plantation companies will likely report weaker sequential and annual earnings for the fourth quarter ended Dec 31, 2022 (4Q22), in the upcoming corporate earning reporting season.

The weaker results will be due to lower crude palm oil (CPO) prices and rising costs during the quarter under review.

The average CPO price had fallen 2% quarter-on-quarter and 24% year-on-year (y-o-y) to RM3,910 per tonne in 4Q22, while cost of production had risen on higher minimum wage and fertiliser costs, CGS-CIMB Research noted.

Reiterating its “neutral” call on plantation companies, the brokerage stated the sector lacked catalysts. However, the sector remained supported by a decent dividend yield of 3%, it added.

It named Kuala Lumpur Kepong Bhd, Hap Seng Plantations Holdings Bhd and Ta Ann Holdings Bhd as its preferred stock picks.

“We are of the view that the downside to CPO price may be limited in the near term as Indonesia said, on Feb 6, that it may suspend some palm oil export permits to secure domestic supply amid rising cooking oil prices ahead of the Lebaran festival,” the brokerage said.

“On top of this, Indonesia plans to raise its biodiesel mandate to 35% in February, from 30% previously. We also expect some improvements in Malaysia’s palm oil exports after the US Customs and Border Protection last week revoked the Withhold Release Order against Sime Darby Plantation Bhd,” it added.

However, CGS-CIMB Research was of the view there could be downside to CPO price in the second half of 2023 due to improved palm oil supplies, with the government having eased conditions for the hiring foreign workers for the plantation sector last month.

It forecast CPO price to trade in the range of RM3,700 to RM4,200 per tonne in February.

Spot CPO prices fell 11% from RM4,165 per tonne on Jan 3 to RM3,691 per tonne on Feb 2 amid concerns over a possible slowdown in imports of edible oils by India in the coming months due to high vegetable oil stocks in the country caused by high imports of edible oils in the past few months and steep rise in domestic rape oil and soya oil production.

The research house, however, noted the average CPO price for January 2023 of RM3,992 per tonne fell by only 1% month-on-month (m-o-m), which was broadly in line with its forecast of RM3,800 per tonne for 2023.Meanwhile, it estimated the country’s palm oil inventory probably grew 3% m-o-m and 46% y-o-y to 2.26 million tonnes at end-January 2023. The estimate was 11% above the 10-year historical January average of 2.03 million tonnes. Official figures would be released this Friday.

Findings from a survey of planters by the CGS-CIMB’s futures team revealed that Malaysia’s CPO output likely fell 14% m-o-m but grew 12% y-o-y to 1.4 million tonnes last month.

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plantations , earnings , catalysts , dividends , costs , Indonesia


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