Planters likely to record better yields in FY24

PETALING JAYA: Increasing cost pressures warrant planters to further boost their yields, and this move could also improve profits significantly, says Maybank Investment Bank (Maybank IB) Research.

The research house in its latest report said the operating cost per mature ha for regional planters has risen since the financial year 2014 (FY14).

“It was gradually initially, but more rapidly in the past two years due to higher wages and higher fertiliser cost with a lagged impact,” it added.

For Malaysian planters, higher domestic crude palm oil (CPO) prices also meant higher windfall taxes and higher Sabah and Sarawak sales taxes payable to the state governments, which add to overall cost pressure.

“If only planters were able to lift their yields, their bottom line would be significantly enhanced.

“By our estimate, a 10% increase in CPO yield will boost the proforma of FY23 core profit after tax and minority interests of planters under our coverage by 9% to 132%,” said Maybank IB Research.

It noted higher unit cost producers and those with pure upstream exposure will have the biggest impact, namely, TH Plantations Bhd, Sime Darby Plantation Bhd, Genting Plantations Bhd and TSH Resources Bhd.

Having said that, local planters are expected to record better yields in FY24, following the return of guest workers.

Among the planters in the region, United Plantations Bhd topped the list as the highest yielder in 2023 with a CPO yield of 6.1 tonnes per ha, boosted by its high fresh fruit bunch (FFB) yield of 28 tonnes per ha and oil extraction rate (OER) of 20.8%, noted Maybank IB Research.

This was followed by TSH Resources (5.1 tonnes per ha), Dharma Satya Nusantara Tbk PT (5.1 tonnes per ha), Bumitama Agri Ltd (BAL) (4.7 tonnes per ha), Kuala Lumpur Kepong Bhd (4.4 tonnes per ha), Golden Agri-Resources Ltd (4.2 tonnes per ha), First Resources Ltd (FR) and Hap Seng Plantations Holdings Bhd both at 4.1 tonnes per ha, respectively.

The research house said: “Due to border closures during the Covid-19 pandemic, we observed some listed Malaysian planters posted lower FFB and CPO yields in FY22-FY23 versus FY20-FY21 due to lack of guest workers harvesting and maintaining the fields.”

As labour shortages in Malaysia have been largely addressed with the gradual return of guest workers, Maybank IB Research now expects yields to improve in FY24-FY25.

On another note, the research house said the low CPO yields do not mean low profitability for some planters.

“The ranking of upstream planters’ profitability does not necessarily correlate with CPO yields achieved,” it added.

For example, Ta Ann Holdings Bhd (RM5,163 per ha on 3.2 tonnes of CPO per ha) and Sarawak Oil Palms Bhd (SOP) (RM5,106 per ha on 3.1 tonnes per ha) recorded better profitability relative to their peers.

This was despite Ta Ann’s CPO yields being below the sector’s average of 3.9 tonnes per ha in FY23.

Maybank IB Research noted for FY23, the most profitable upstream planter was United Plantations with an estimated operating profits of RM15,810 per ha.

This was about three times more than the sector’s average of RM5,027 per ha.

Besides United Plantations’ high CPO yield, the better performance was also attributed to its better than market CPO average selling price achieved in FY23 due to commodity hedges made in prior years.

BAL (RM9,090 per ha on 4.7 tonnes per ha) ranked as the second most profitable, followed by FR (RM7,124 per ha on 4.2 tonnes per ha) and IOI Corp Bhd (RM6,730 per ha on 3.9 tonnes per ha), the research house said.

Maybank IB Research has a “neutral” call on the regional plantation sector.

The upside risks to the sector and companies include weaker-than-expected production recovery of palm oil and other vegetable oils, Brent crude oil price rising closer to US$150 per barrel, weather anomalies at major palm oil and oilseeds producing regions, unfriendly government policies at producing or exporting countries and escalation of geopolitical tensions in Russia-Ukraine and/or the Middle East.

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