Still not a good quarter for planters
We reiterate our view that as spot CPO price was trading near the operating cost of selected high cost producers, their earnings in 3Q18 will be under tremendous pressure to stay in the black. Maybank IB Research
KOTA KINABALU: Malaysianbased planters are likely to see continued earnings pressure in the third quarter of 2018 on weaker crude palm oil (CPO) price and production.
Integrated players with oleochemical divisions will fare relatively better, said researchers with Maybank Investment Bank Bhd (Maybank IB Research), benefiting from low raw material costs.
To note, Malaysia Palm Oil Board’ s( MP OB )3 Q 18 C PO output of 4.98 million metric tonnes (MT) has lagged expectations. For the first nine months of 2018, CPO output was down two per cent year on year (y-o-y) to 13.9 million MT.
Coupled with even weaker CPO’s average selling price (ASP) of RM2,189 per tonne and palm kernel’s PK ASP of RM1,795 per tonne, 3Q18 core earnings of Malaysian-based planters are likely to come in weaker compared to a year ago.
“We reiterate our view that as spot CPO price was trading near the operating cost of selected high cost producers, their earnings in 3Q18 will be under tremendous pressure to stay in the black,” it said in a report yesterday.
On foreign exchange (forex), companies with USD debt exposure are likely to suffer from unrealized forex translation losses as US dollar-ringgit has fallen by 2.5 per cent quarter on quarter (q-o-q) during the quarter.
Based on MPOB statistics, Sabah and Peninsular Malaysia planters experienced successive quarters of YoY decline in output whereby production fell by 12 per cent y-o-y and 12 per cent y-o-y respectively in 3Q18.
Only Sarawak planters recorded positive growth of six per cent y-o-y, it said.
“Overall, we believe Malaysian based pure upstream players will largely record lower annual core earnings on lower revenue,” Maybank IB Research said.
“While Malaysian planters suffered from low output, we gather Indonesia enjoyed fairly good output in 3Q18 especially in Kalimantan whereby it was reported that tanks were `overflowing’ -- in part due to logistical issues whereby some ships or barges were rechanneled for biodiesel transportation use.
“Hence, companies like TSH Resources Bhd could report relatively stronger output given 85 per cent of its group output comes from Kalimantan.”
Meanwhile, integrated players with oleochemical divisions -- like IOI Corporation Bhd and Kuala Lumpur Kepong Bhd -will likely enjoy another quarter of decent margins in 3Q18 as the utilisation rate of their oleo plants was high at 103 per cent in 3Q18 while raw material costs remained low.
As for pure Malaysian refiners, their margins are likely to remain weak in 3Q18 on declining CPO price trend during the quarter, and zero CPO export duty imposed in Sept which reduced the price competitiveness of Malaysian refiners.
Refiners’ 3Q18 average utilization rate was still comparatively low at 70 per cent.
“Conversely, we expect a still good refining margin in Indonesia boosted by the export duty differentials in Indonesia which favours refiners – and not upstream players – and a good harvest there boosting refineries’ utilisation rates.”