PETALING JAYA: Plantation companies will likely register a mixed performance in their upcoming second-quarter results (2Q23) starting Aug 23, according to Hong Leong Investment Bank (HLIB) Research.

This will occur on the back of mixed fresh fruit bunch (FFB) output growth and slightly lower crude palm oil (CPO) prices, it said.

Despite the second quarter being a seasonally higher productivity quarter as witnessed by a 6.1% quarter-on-quarter (q-o-q) increase in Malaysia’s CPO production, HLIB Research said three out of six planters under its coverage clocked in lower FFB output in 2Q23.

The three planters are FGV Holdings Bhd, Hap Seng Plantations Holdings Bhd and Kuala Lumpur Kepong Bhd (KLK), it said in the sector’s 2Q23 results preview yesterday.

According to HLIB Research, KLK’s earnings will likely come in lower in 3Q23, on the back of a 1.6% decline in FFB output, lower palm product prices and persistent challenging operating environment at the manufacturing segment, particularly oleochemical sub-segment, amid weak demand sentiment.

The company is scheduled to release its quarterly results on Aug 23.

IOI Corp Bhd’s earnings will also likely come in lower in 4Q23, as the 3.5% increase in FFB output will likely be weighed down by lower palm product prices and weak performance at the downstream segment, said the research house.

This is on the back of negative refining and fractionation margins due to high CPO export duty in Indonesia and weak near-term demand prospects for oleochemical sub-segment, it added.

HLIB Research also envisaged most planters will likely register a year-on-year (y-o-y) decline in their upstream plantation earnings, mainly on the back of significantly lower palm oil prices, higher CPO production costs arising from the minimum wage hike as well as elevated fertiliser and diesel prices.

“Despite easing labour shortage in Malaysian estates, only four out of six planters under our coverage registered higher FFB production.

“Both FGV and Sime Darby Plantation Bhd still registered y-o-y decline in their 2Q23 FFB output, down by 18.6% and 1.9%, respectively, due to less favourable weather conditions at FGV’s estates and below-potential harvester’s productivity,” it said.

Year-to-date, the research house said CPO price has averaged at RM3,916 per tonne.

“We maintain our CPO price assumption of RM4,000 per tonne for 2023.

“The arrival of El Nino, coupled with the potentially stronger demand arising from palm’s improved price competitiveness, weak ringgit and low palm oil stock levels among major palm consuming countries, will support CPO prices in 2H23,” it added.

Moving into 2024, HLIB Research has kept its projected CPO price at RM3,800 per tonne based on the assumptions that the El Nino will turn out to be moderate and will dissipate by end-2023.

The research house has also maintained a “neutral” stance on the plantation sector with its top pick, IOI Corp, at a target price of RM4.30 a share, given its commendable valuations.

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