Maybank IB: Low output and price to drag down plantation firms’ profit
KUALA LUMPUR: Plantation companies are likely to report sombre second-quarter results, said Maybank Investment Bank Bhd (Maybank IB).
It identified low output, low price and a weaker ringgit against the US dollar as key drags to the upcoming results season.
Given that the lower crude palm oil (CPO) price was approaching the operating cost of selected high-cost producers, earnings had become increasingly volatile, said the firm.
Planters with Sabah operations or United States debt exposure, as well as relatively higher cost producers, will suffer more.
“We expect possible earnings disappointment from IOI Corp Bhd (on foreign exchange losses), Boustead Plantations Bhd and TH Plantations Bhd,” said the firm in a note.
Maybank IB made no changes to its forecasts as the expectation of the weak results had been largely priced in, given the weak year-to-date share price performances.
It said subsequent to a good harvest in the first quarter of this year, Sabah and Peninsular Malaysia planters experienced an unexpected reversal in output.
“Overall, we believe pure upstream players will largely record lower year-on-year earnings. On a relative basis, Sabah and Peninsular Malaysia-based planters will likely underperform their Sarawak peers.”
Maybank IB said integrated players with oleo-chemical divisions would likely enjoy relatively decent margins in the second quarter again given lower raw material costs.
Utilisation rate of the oleo industry remained high at 95 per cent in the quarter, it added.
“However, despite the expiration of the CPO duty-free exemption in April, refining margins are likely to remain bad in the quarter as lower quarter-on-quarter CPO price is likely to result in mark-to-market inventory losses,” it said.