Slumping CPO prices affecting IOI bottom line
Planter’s first quarter income slides 60%
PETALING JAYA: The slumping prices of crude palm oil (CPO), which have dropped to a three-year low, is hurting IOI Corp Bhd.
Net profit in the first three months ended Sept 30 fell 60% to RM143.8 mil from RM360 mil a year ago on lower fresh fruit bunch (FFB) production fell and cheaper selling prices, the planter said in a filing with Bursa Malaysia yesterday.
“With the lower palm oil prices, the plantation segment’s financial performance for the second quarter of FY2019 (2Q19) is expected to be lower than the previous quarter,” it said.
Revenue in the first quarter rose a marginal 0.5% to RM1.88 bil from RM1.87 bil in the previous corresponding period, and its earnings per share slid to 2.29 sen from 5.73 previously.
IOI’s share price fell seven sen to close at RM4.49 yesterday. The group said its plantation segment profit for Q1 of its financial year (FY) ending June 30, 2019, stood at RM149.5mil, which was 51% lower than the profit of RM305.6mil achieved in 1Q18.
“The lower profit reported is due mainly to lower FFB production and lower CPO price realised,” the company explained. IOI said the group’s oil palm production in 2Q19 is expected to increase, when compared to the unusually low production in 1Q19.
FFB production for Q1FY19 stood at 713,329 tonnes as compared to 869,838 tonnes for 1Q18 and average CPO price realised for 1Q19 was RM2,255 per tonne, compared with RM2,645 per tonne in 1Q18.
“With lower exports during the end of the year period, the current high palm oil invento- ries is expected to persist in the near future,” it said. The prevailing trade war between China and US will provide greater opportunity for Malaysia to increase its exports of palm oil to China during the first quarter of next year when China’s soya beans stocks are drawn down, IOI said.
“The current discount of palm oil price over mineral oil price resulting in greater demand for palm biodiesel is also a positive factor which will underpin palm oil price,” it added. Overall, IOI said it expects the price of CPO to be supported at between RM2,000 and RM2,250 per tonne until the beginning of year 2019. In general, the group would expect its financial performance for the next quarter to be satisfactory, albeit slightly lower than the previous quarter due to the lower CPO prices.
For 1Q19, IOI reported a pre-tax profit of RM195.2mil, down 56.6% from RM450.1mil for 1Q18. IOI attributed the lower pre-tax profit to lower operating profit and total net foreign currency translation loss on foreign currency denominated borrowings and deposits.
Excluding the total net foreign currency translation loss of RM61.1mil, compared with a gain of RM68.1mil in the previous corresponding quarter, the underlying pre-tax profit of RM236.1mil for 1Q19 was 41% lower than the underlying pre-tax profit of RM403.5mil for 1Q18, due mainly to lower contributions from all segments.