Growth expected in plantation’s upcoming results
KUCHING: With plantation companies starting to report their quarterly financial results starting from mid-November, analysts believe most of them will likely report sequential quarterly growth in their upcoming results, on the back of higher palm product prices and fresh fruit bunch (FFB) output.
The team with Hong Leong Investment Bank Bhd (HLIB Research) believed plantation players with larger exposure in Indonesia will post bigger increases in their realised crude palm oil (CPO) prices in the third quarter of 2021 (3Q21), as the revised CPO levy structure in Indonesia effective July 2, 2021 will result in bigger gains in realised CPO prices there versus Malaysia.
“We believe most plantation players will report better 3Q21 performance, as significantly higher CPO price will more than mitigate lower fresh fruit bunch (FFB) output,” commented HLIB Research.
To note, CPO prices have increased by moer than 60 per cent in 3Q21.
“As for the integrated palm oil players, while higher feedstock costs will hurt margin at downstream segment, this will likely be mitigated by improved demand for downstream products (following the gradual reopening of economies).”
During 3Q21, only two out of eight plantation players clocked in higher FFB output during 3Q21, while the remaining six plantation companies reported lower FFB output, due mainly to arising from labour shortage in Malaysia, and less favourable weather condition in Indonesia.
Meanwhile, CPO price strength continued into October 2021, reaching to an all-time-high of RM5,050 per tonne.
“While we remain doubtful of the sustainability of current CPO price over the longer term, we believe CPO price will still stay lofty in the near term on the back of near-term supply constraints, and increasing likelihood of La Nina episode by November 2021,” it said.
“We believe a more noticeably decline in CPO price will happen when supplies of vegetable oils (in particular, palm oil and soybean) start showing signs of recovery (possibly by 2Q22).”
The team at Public Investment Bank Bhd (PublicInvest Research) highlighted easing concerns for foreign worker shortage within the sector.
“Most plantation companies have been suffering from acute harvester shortage over the last two years due to the closure of international borders during the pandemic period,” it said in its own sector report.
“On a positive note, the Ministry of Plantation Industries and Commodities has recently approved 32,000 foreign plantation workers, who have completed their Covid-19 vaccination to be brought into Malaysia in stages starting midOct.
“We think the impact of the additional 32,000 foreign workers on the palm oil industry will be felt sometime at the end of the 1Q 2022, potentially resulting in better crop recovery, harvesting cycle and CPO yield.
“In view of the stronger-thanexpected CPO price performance for the first 10 months, we revise up our 2021 CPO price forecast from RM3,200 per metric tonne (MT) to RM4,000 per MT. For 2022, we raise our CPO price forecast from RM2,700 per MT to RM3,500 per MT.
“We think the current CPO price momentum would sustainable until first quarter of 2022. Thereafter, CPO prices should ease as we expect production to increase given the reprieve seen on the issue with foreign worker shortage in Malaysia.”