KUCHING: Malaysian plantation players are expected to see poor results for the second quarter of financial year 2015 (2Q15) on the back of a low-yield cycle after a strong harvest a year ago.
Although the first quarter is seasonally the lowest production quarter for crude palm oil (CPO), Maybank Investment Bank Bhd (Maybank IB Research) observed that fresh fruit bunch production in this year’s first quarter was ‘exceptionally weak’.
“None of the Malaysian plantation stocks under our coverage recorded any FFB growth in 1Q15,” said the research house in a note yesterday.
“Year on year (y-o-y) declines ranged from negative two per cent to minus 20 per cent.”
While the industry suffered from low yield cycle in 1Q15, this was not compensated by higher CPO average selling prices (ASP), the firm added.
“In fact, Malaysian Palm Oil Board’s spot CPO ASP was down 16 per cent y-o-y to per cent to RM2,263 per tonne in 1Q15, below our and consensus CPO ASP estimate of RM2,400 per tonne for 2015.
“As for refineries, the industry’s average refinery plant utilisation rate dropped 13 percentage points on an annual comparison to 53 per cent in 1Q15, implying zero-to negative refining margins.
“With zero differential export taxes between CPO and refined products in 1Q15, refiners did not enjoy any input cost advantage,” Maybank IB Research added.
“As for downstream, the industry’s average oleo-chemical plant utilization rate climbed seven percentage points to 83 per cent, a good sign that margins remained positive.”
The firm believed the combination of low CPO ASP and contracting FFB output in 1Q15 will naturally result in weak 1Q15 profits.
This trend is similar to recent earnings release in Singapore and Indonesia that have largely disappointed, it added.
“Selected stocks will suffer a third whammy as the US dollar has appreciated sharply by 5.5 per cent and 5.9 per cent respectively against the Indonesian rupiah and Malaysian ringgit in 1Q15.
“We expect companies with US dollar debt exposure to fund their expansion in Malaysia and Indonesia to record relatively huge forex translation losses.”
Besides results disappointment, Maybank IB Research highlighted two other events to watch this May, the first being IOI Corpation Bhd may drop off the Securities Commission Syariah compliant list, and Felda Global Ventures Bhd dropping off as a FBM KLCI 30 constituent as it is now rank 41 by market capitalisation.
It retained its top Malaysian buy recommendations for Genting Plantation Bhd, Sarawak Oil Palms Bhd and Sime Darby Bhd.