TA Research has maintained its average CPO price forecast at RM4,000 per tonne for 2024 and RM3,800 per tonne for 2025, respectively.
PETALING JAYA: Plantation companies posted a mixed bag of earnings results in the second quarter of financial year 2024 (2Q24) amid lower crude palm oil (CPO) prices and higher operating costs, say analysts.
In its results preview, TA Research said of the seven planters under its coverage, four reported earnings that met expectations, one fell short and two exceeded its forecasts.
“Most plantation companies recorded higher year-on-year (y-o-y) earnings.
“The stronger performance was largely driven by increased fresh fruit bunch (FFB) production and a recovery in the downstream business, while TSH Resources Bhd
’s earnings were impacted by lower FFB production,” it added.
In the downstream division, TA Research said SD Guthrie Bhd, Kuala Lumpur Kepong Bhd (KLK) and IOI Corp Bhd reported higher profits compared with the previous year.
“The plantation downstream segment showed a recovery, mainly due to a rebound in demand and increased production volumes,” noted the research house.
For 2Q24, the sector posted a significant 93% y-o-y increase in profit, largely attributable to a low base in 2Q23, which had been impacted by lower palm oil prices and higher operating costs.
In terms of FFB production, TA Research said all companies, except TSH experienced y-o-y growth ranging from 4.2% to 23.5%. TSH also saw negative FFB production growth of 7.7% due to challenges in its Indonesian operations, it added.
On a quarter-on-quarter (q-o-q) basis, KLK, United Malacca Bhd and Kim Loong Resources Bhd were the only companies to report a decrease in FFB production, with declines ranging from 0.5% to 12.3%.
TA Research, which is “neutral” on the sector, has maintained its average CPO price forecast at RM4,000 per tonne for 2024 and RM3,800 per tonne for 2025, respectively.
The research house has “buy” recommendations on IOI with a target price (TP) of RM4.17, Kim Loong (TP: RM2.50) and Wilmar International Ltd (TP: S$3.56).
Meanwhile, CIMB Research has an “overweight” rating on the sector and described the 2Q24 results as generally in line with expectations, with five planters reporting results in line and two missing expectations.
“IOI and Ta Ann Holdings Bhd missed our earnings forecasts primarily due to lower-than-expected manufacturing margins and losses from Ta Ann’s timber division,” it noted.
Regarding key trends, the brokerage firm observed that while downstream margins were weaker-than-expected for IOI, there are signs that earnings may have bottomed out, as both IOI and KLK have guided for higher sales volumes and improved profit margins in this segment.
Additionally, fertiliser programmes were generally behind the 50%-mark for most planters, with costs generally lower across the board.
Looking ahead to the second half of 2024 (2H24), CIMB Research said most planters expect better earnings, driven by higher FFB output due to seasonality and the expectation that prices will remain supported by tight supply.
The brokerage’s top picks are SD Guthrie and IOI Corp.
For Kenanga Research, the plantation sector’s 1H24 results have exceeded its expectations, but below market expectations.
Both the underlying upstream and downstream saw better margins.
“In the former, firm palm product prices, higher FFB output and easier cost lifted pre-tax profit margins q-o-q. In the latter, save for KLK, margins also improved as SD Guthrie and IOI enjoyed stronger buying from Europe and at better margins,” it noted.Kenanga Research, meanwhile, said new ventures into solar and property development are gaining pace with earnings looking to become more meaningful among plantation companies over the next two to three years.
“Recognising that upstream expansion is increasingly regulated and limited in the region, Malaysian planters have started seeking alternative non-plantation ventures to improve returns and grow earnings again,” it pointed out.
The research house said it continues to prefer players with the ability or flexibility to grow. These include IOI (TP RM4.20) for its downstream turnaround, PPB Group Bhd (TP: RM17.50) for its regional edible oils and flour market growth , TSH (TP: RM1.30) for its 25% to 30% upstream expansion over the next three-to-five years and United Malacca (TP: RM6) for its maturing Indonesian estates nudging up profits.
For yields, Kenanga Research suggested Hap Seng Plantation Holdings Bhd (TP: RM2.30).
