Sunday, September 27

‘Best year ever for regional plantation players’

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KUCHING: Despite seeing a mixed bag of results for plantation players in the December quarter, 2011 was still pegged as the ‘best year ever’ for most plantation companies within the region, including Malaysia.

As OSK Research Sdn Bhd (OSK Research) revealed results for the fourth quarter (4Q) of 2011, which turned out to be a mixed quarter for plantation companies, the firm still believed it was the best year ever due to record average crude palm oil (CPO) prices and yield recovery in both Malaysia and Indonesia.

“For the year 2012, production will probably grow minimally,” outlined plantations analyst Alvin Tai from OSK Research in a telephone interview. “Some players will see earnings growth while others will face contractions.

“The reason for this is because last year, there was a lot of catching up to do in production. This year, we expect to see this to normalise.”

Tai noted in his report that while all the companies chalked up higher production for the whole of 2011, 4Q was particularly weaker for those with Kalimantan plantations.

Additionally, he said Indonesia-based planters such as Golden Agri Ltd, Indofood Agri Resources Ltd and PT Astra Agro Lestari Tbk suffered year-on-year drops in 4Q core earnings of 45.5 per cent, 24.3 per cent and 31.9 per cent respectively due to higher export duty.

“The only company reporting a core loss was Kencana Agri, which we believe was largely due to the higher yield drag stemming from its new mature areas. We believe the yield drag will ease in 2012.”

Additionally, the OSK Research analyst outlined that there were more profit forecast upgrades during the December quarter results as the research house had upgraded its forecasts for nine companies and downgraded the numbers for five.

“Having said that, our forecast cuts were at a bigger quantum than the upgrades,” Tai noted. “Within the sector, we continue to like First Resources and Sarawak Oil Palms despite their strong stock price performance. These are well run plantations with more organic production growth going forward.”

Speaking on palm oil prices, Tai was of the opinion that Malaysia would not experience the same pattern seen in 2011.

“I think prices will get to a peak of RM3,500 and ease back from that point. Regardless, having an average price of RM3,000 is already fantastic for plantation companies’ profitability,” he concluded.

“Thus, we continue to maintain neutral stance on the sector. Although soybean and palm oil prices have strengthened of late, it is due to the threat of lower yields in the upcoming one or two months. For prices to sustain their run-up, demand has to stabilise and pick up, which we have yet to see.”