Planters in for flattish or weak 1Q performance

PETALING JAYA: Most plantation companies will likely register flattish or weaker performance in their quarterly financial results, which will roll-out starting tomorrow.

Despite the higher realised palm products prices, Hong Leong Investment Bank (HLIB) Research expects most planters’ quarter-on-quarter (q-o-q) earnings will be weighed down by seasonally lower fresh fruit bunches (FFB) output and higher fertiliser costs.

HLIB’S latest plantation sector’s first quarter (1Q) results preview showed that six out of seven planters under its coverage during the quarter have clocked in lower FFB output and higher fertiliser costs, but partly mitigated by improved crude palm oil (CPO) prices.

Zooming in on selected individual planters, it noted that Genting Plantations Bhd will likely report flattish q-o-q performance, as improved palm product prices and improved joint-venture contribution will be offset by higher fertiliser cost, a 15.2% q-o-q decline in FFB output and potentially weaker downstream performance arising from high feedstock costs.

As for Sime Darby Plantation Bhd, HLIB Research expects the planter to report a flattish q-o-q in 1Q as improved palm product prices and sustained performance at downstream segment will likely be moderated by higher fertiliser cost, and lower FFB output as “we believe due to the lower output from its estates in Malaysia.”

TSH Resources Bhd’s core earnings also will likely come in lower in 1Q, the research house said, adding that “the marginally higher FFB output and better palm product prices will likely be offset by higher production costs and muted performance at its cocoa segment.”

However, on a year-on-year (y-o-y) basis, HLIB Research pointed out that the higher CPO prices will likely help to drive planters’ upstream earnings in their 1Q performance.

CPO prices, which have soared over 50%, would be able to mitigate higher production costs arising mainly from higher fertiliser prices and mixed FFB output, added the research house.

Based on HLIB Research’s estimates, four out of seven planters under its coverage have clocked in y-o-y growth in their FFB output.

“As for the integrated players, we believe volatile feedstock prices, coupled with elevated freight cost, will likely hinder profitability at downstream segments,” it noted.

HLIB Research pointed out that CPO price has averaged at RM6,300 per tonne year-todate.

“We expect palm oil prices to remain at elevated levels for a while, supported by supply disruption of major vegetable oil arising from less favourable weather conditions, geopolitical tension and protracted fertiliser supply,” it added.

Therefore, the research house has maintained its CPO price assumptions of RM5,500 in 2022, RM4,500 in 2023 and RM4,500 per tonne in 2024.

HLIB Research also maintained an overweight stance on the sector.

This is underpinned by high near-term CPO prices, which will in turn translate to good near-term earnings prospects, easing of the environmental, social and governance concerns and decent valuations.

The research house’s top picks include FGV Holdings Bhd with a target price (TP) of RM2.43, IOI Corp Bhd (TP: RM5.09), Kuala Lumpur Kepong Bhd (TP: RM32.43) and Sime Darby Plantation (TP: RM5.95).