KUCHING: The March quarter results for the plantation sector is deemed generally disappointing on the back of weaker than expected production and an increase in cost.
According to OSK Research Sdn Bhd (OSK Research) in its research report, “Of the eight Malaysian plantation stocks under our coverage, only two had results in line with our forecasts.” Though the March quarter was a low crop season and a quarter-on-quarter decline was to be expected, OSK Research observed a much steeper decline this year as compared with last year’s.
On average, it noted that production declined by 20.5 per cent q-o-q compared with 11.5 per cent last year, attributing the weak production to the dry weather in the first quarter of 2010.
“Besides the weaker than expected production which increased unit costs, higher input costs such as higher fertiliser prices and wages also weighed on profitability.
This was compounded by manuring during the quarter, which usually took place in April after the rainy season had ended.
“Manuring in the June quarter did not weigh as much on profitability as it was a stronger production quarter,” the report added.
OSK Research believed that some of the higher than normal costs would normalise in the June quarter as less fertiliser application would be needed if most of it had been done in the March quarter.
“However, some of the effects of weak production could linger on a little longer.
“From our understanding, Sabah’s production remained weak in May, although the seasonal upcycle in production has normally started by now.
“This is especially true for the fully matured trees that will continue strong production, as though there was no adverse weather impact,” the report added.
The average palm oil price for the second quarter was believed to be higher q-o-q.
Palm oil price averaged RM3,394 per tonne in April-May compared with RM3,208 in the March quarter.
OSK Research believed that, even if prices remained at RM3,000 for the whole of June, the average price would still be higher at RM3,252 per tonne and thus, spur a rebound in profitability.
The research house cut the earnings forecasts and fair values for most companies under its coverage.
“We continue to like Sarawak Oil Palms Bhd as its young trees mean that production growth will be strong in the next few years, which could help mitigate risks arising from softer palm oil prices,” the research house noted.