EARNINGS for Malaysian planters will come under pressure in 2H 2022 amid on-going crude palm oil (CPO) price correction coupled with higher fertiliser costs and new minimum wage impact.
Moreover, palm oil prices is expected to weaken further in the short term due to softer demand and “distress selling” by top producer Indonesia, according to Reuters, citing a forecast by commodities consultancy LMC International.
Nevertheless, record high CPO spot average selling price (ASP) will likely drive growers’ 2Q 2022 core profit after taxation and minority interests (PATMI) higher, according to Maybank IB Research.
“We expect the industry to deliver its 10th consecutive quarter of year-on-year (yoy) core PATMI growth for the upcoming 2Q 2022 results underpinned by historic high CPO spot prices which averaged RM6,552/metric tonne (MT) (+56% yoy; +8% quarter-on-quarter (qoq) in 2Q 2022,” projected analyst Ong Chee Ting in a plantation sector update.
“The higher CPO and palm kernel prices are expected to more than offset weaker 2Q 2022 output whereby MPOB (Malaysian Palm Oil Board) statistics revealed a 5% yoy output drop at the national level (+18% qoq on seasonality).”
Maybank IB Research further expects earlier forward sales to water down ASP for some planters in the course of 2Q 2022.
With the exception of Sarawak Oil Palms Bhd, Ta Ann Holdings Bhd and Boustead Plantations Bhd which practice minimal to no forward sales, others continue to engage in some form of forward sales with locked-in prices.
“Sime Darby Plantation Bhd guides that it has sold forward 50% of its Peninsular Malaysia output (ASP of circa RM4,700/metric tonne) and 40% of its PNG (Papua New Guinea) output (cost and freight ASP of circa RM6,300/MT) for May to December 2022,” revealed the research house.
“By our estimate, they represent circa 30% of Sime Plantation’s group output at an ASP of circa RM5,460/MT.”
As for TH Plantations Bhd, it has forward sold circa 30% of its 2Q 2022’s projected output at an ASP of RM4,800/MT while Genting Plantations Bhd and TSH Resources Bhd, both companies, too, have some forward sales but their overall CPO ASPs will continue to be watered down by Indonesia’s progressive export tax structure given their huge presence there.
“For integrated players like IOI Corp Bhd and Kuala Lumpur Kepong Bhd, they sustained their usual two to three months of forward sales strategy due to their downstream operations, thus preventing them from fully benefiting the high spot prices, too, in 2Q 2022,” added Maybank IB Research. – July 27, 2022
