Affin Hwang Capital ‘neutral’ on plantation sector

KUALA LUMPUR: Plantation companies performed disappointingly in the second quarter of this year as core net earnings were weaker year-on-year, mainly due to higher cost of production.

This was despite stronger revenue due to higher fresh fruit bunches and crude palm oil production, said Affin Hwang Capital.

It said the results for Kuala Lumpur Kepong Bhd (KLK), Felda Global Ventures Holdings Bhd, IJM Plantations Bhd, IOI Corp Bhd, Genting Plantations Bhd, Jaya Tiasa Holdings Bhd and WTK Holdings Bhd were below expectations.

Hap Seng Plantations Holdings Bhd and Tan Ann Holdings Bhd were within expectations while Sime Darby Bhd came in above expectations, Affin Hwang Capital added.

“For the second quarter, earnings for the plantation sector were a disappointment, partly due to higher-than-expected cost of production that affected earnings.

“Notably, given the rising earnings contribution from the plantation division offsetting the deterioration in the timber earnings, we are placing Ta Ann, Jaya Tiasa and WTK under the plantation sector (which were previously under the timber sector),” it said in a report.

Affin Hwang Capital recently lowered its sector earnings forecasts for this year and next year by four to eight per cent.

It also downgraded its ratings on KLK, IOI Corp, IJM Plantations, Jaya Tiasa and WTK, and maintained a “neutral” stand on the sector, with Genting Plantations as its top pick.