Local firms hit by weak demand, soyabean oil competition
KUALA LUMPUR: Local oil palm companies reported poorer financial results for the recent quarter, dragged down by weak demand and intense competition with rival soyabean oil.
Pong Teng Siew from Inter-Pacific Research said soyabean oil prices fell due to the United States-China trade war as the Asian superpower stopped importing the commodity.
“This affected crude palm oil (CPO) prices. It is important for CPO to remain competitive in the market when its main rival (soyabean oil) lowers its value,” he told NST Business.
The head of research said Malaysian plantation firms may not need additional capital expenditure to enhance operational efficiency when it comes to harvesting and processing oil palm.
“This is the commodity business and prices fluctuate. Companies, however, can control operation cost,” said Pong, adding that the costs were rising due to higher minimum wages.
He said the supply side of palm oil was affected by weather conditions beyond control, namely El-Nino.
Pong said the plantation companies’ yields and supplies were rebounding, but were still hampered by weak demand.
FGV Holdings Bhd posted a RM849.25 million net loss in the third quarter ended September 30, dragged by lower palm oil prices and an RM788 million impairment, the bulk of it coming from its unit Asian Plantation Ltd.
The loss was in contrast with the RM41.52 million net profit posted in the same quarter a year ago. Its quarterly revenue decreased 25 per cent to RM3.19 billion from RM4.14 billion in the third quarter a year ago.
IJM Plantations Bhd recorded a loss of RM28.29 million in the third quarter ended September 30 from a net profit of RM7.44 million in the previous corresponding period last year. Revenue declined 28.7 per cent to RM140.08 million from RM196.43 million previously.
IOI Corp Bhd’s net profit fell to RM143.8 million for the first quarter ended September 30, from RM360 million in the same period a year ago. Revenue was higher at RM1.88 billion from RM1.87 billion previously.
The company said the plantation segment’s profit was 51 per cent lower year-on-year at RM149.5 million during the quarter under review due to lower fresh fruit bunches (FFB) production and weak CPO price realised.
MIDF Research had expected a worse core net loss of RM97 million for FGV’s financial year ending December 31 this year while its 2019 core earnings had been reduced to RM33 million, assuming lower FFB production.
The research firm has reduced its target price for FGV to RM0.91 from RM1.54 previously.
Kenanga Research said the depressed CPO prices were expected to keep FGV in losses.
It said FGV’s management did not foresee further kitchen-sinking exercises.
“We maintain a ‘market perform’ with lower target price of RM0.96 from RM1.46 per FGV share. FGV could potentially return to profitability next year on sturdy FFB production outlook and the absence of impairments,” it added.