Kenanga Research said the outlook for biodiesel remained challenging as the Indonesian Oil Palm Estate Fund (BPDP) will soon begin disbursing funds collected through the palm oil levy imposed since July 2015.
KUCHING: Analysts at Kenanga Investment Bank Bhd (Kenanga Research) anticipate the possibility of a tax reduction in the coming Budget 2016 to spur economic growth.
“If this occurs, we expect positive, but limited impact on planters’ bottom lines,” the research house said yesterday in its sectoral outlook.
“We note that the biggest beneficiary under our coverage is Felda Global Ventures Bhd with financial year 2016 estimates (FY16E) potential earnings growth of 2.6 per cent for a one per cent reduction in tax rates.
“For other stocks under our coverage, we expect to see minimal FY16E earnings growth by only 1.1 to 1.4 per cent for each one per cent tax rate reduction.”
Meanwhile, Kenanga Research said the outlook for biodiesel remained challenging as the Indonesian Oil Palm Estate Fund (BPDP) will soon begin disbursing funds collected through the palm oil levy imposed since July 2015.
“We gather that BPDP has collected one trillion rupiah (US$70.7 million) as of early September 2015, which is in line with our US$250 million to US$300 million full-year expectation.
“BPDP’s target August disbursement of 26 to 27 billion rupiah at a subsidy of 2,700 rupiah per litre represents 10,000 kilolitres of subsidised biodiesel.
“Assuming a similar subsidy going forward, we estimate BPDP would require 2.1 trillion rupiah (US$141.3 million) to support Pertamina’s contracted crude palm oil purchase of 765k kilolitres, making up 47 to 57 per cent of expected full-year collection.
“Hence, fully supporting biodiesel through subsidies might require a tradeoff with planned replanting efforts. As such, we believe there remains a possibility of missed targets either on end-biodiesel usage or land area replanted.”
As such, the research house forewarned of another lackluster quarter ahead.
“We expect another soft quarter this 3Q15. Although our expected Malaysia’s 3Q15 production at 5.96 million metric tonnes (MT) makes up 30.1 per cent of our FY15 estimate of 19.80 million MT, this would be offset by lower 3Q15 CPO prices at RM2,058 per MT, which is 6.7 per cent below our FY15E forecast of RM2,200 per MT.”
On a quarterly basis, while Malaysia’s 3Q15E production is 13.1 per cent higher against 2Q15, 3Q15 CPO prices are 6.2 per cent lower. Hence, Kenanga Research expects expect 3Q15 results to be generally flat quarter on quarter. Year on year, results are likely to be lower as 3Q15 CPO prices were seven percent lower than 3Q14’s RM2,212 per MT.
“Meanwhile, planters under our coverage saw a range between minus 9.5 percent to 6.3 percent in fresh fruit bunch growth between July to August, which is not likely to make up for the lower CPO prices. Thus, we think 3Q15 results would be flat-to-lower year on year.
“On-going dryness will continue to hit planters. Certain regions are currently seeing below average rainfall, particularly Sabah, south and central Kalimantan, south Sumatra, Sulawesi and Papua among others.
Extended dryness beyond two to three months could result in tree stress and therefore lower FFB production of up to 30 percent in the worst case scenario.
Planters in affected areas may see weaker-than-expected FFB growth heading into early-2016, and even long-term impact in mid-late 2017.”