Quiet first quarter for planters, but positivity intact
KUCHING: Despite plantation firms seeing an unexciting quarter for the first quarter of financial year 2018 (1Q18), MIDF Amanah Investment Bank Bhd (MIDF Research) expects better crude palm oil (CPO) prices in the second half of 2018 (1H18) to translate into better earnings.
Out of the 10 plantation companies under its coverage, MIDF Research saw that there were two outperformers, four underperformers and four within expectations.
As for the four underperformers, it was mostly due to non-plantation divisions except for TSH Resources Bhd which was affected by higher than expected cost.
The four companies with earnings matching expectations are IOI Corporation Bhd, Kuala Lumpur Kepong Bhd, PPB Group Bhd and Genting Plantation Bhd.
The research firm noted that underperformance was mostly caused by non-plantation divisions.
“For FGV Holdings Bhd (FGV), its earnings contribution from associate came in weaker than expected. Meanwhile, TA Ann Holdings Bhd has been affected by lower than expected production of export logs,” it observed in a report.
“Lastly, Fima Corporation Bhd (Fimacor) earnings are affected by weaker than expected earnings in the “production of security and confidential documents” division. Post 1Q18 result, we have downgraded two stocks. These
For FGV Holdings Bhd (FGV), its earnings contribution from associate came in weaker than expected. Meanwhile, TA Ann Holdings Bhd has been affected by lower than expected production of export logs. MIDF Research
include Fimacor and Ta Ann.”
MIDF Research expect CPO prices to improve in 2H18 as it believed that the uptrend in production is now getting close to the end.
Recall that palm oil production declined one per cent month on month (m-o-m) in April-2018 but increased 0.7 per cent year on year (y-o-y) to 1.56 million tonnes.
“The production decline m-o-m from March to April is rare and this is the first time it occurs in eight years,” it said.
“The increase of 0.7 per cent y-o-y is a significant slowdown from March 2018 increase of 7.5 per cent y-o-y and this could be an indicator that the strong uptrend in production may be over soon.
“Hence, we expect better CPO price in 2H18 to translate into better earnings.”
Thus, the research firm maintained its positive view on the sector as it expected CPO price to increase to US$650 per tonne in the next three months.
“The good global economy growth should lead to higher consumption per capita.
“Additionally, strong support on CPO demand came from the news that Indonesia plans to expand its biodiesel program to B25 (from B20 currently) in early 2019. On the supply side, consensus estimate of huge supply growth may not be fully realized as the upcycle in production is getting closer to its end.”