PETALING JAYA: Most plantation companies are expected to report further sequential net profit improvements in their third quarter of financial year 2024 (3Q24) results, says CGS International (CGSI) Research.
The key driving factors include 3Q24 being the peak production quarter of the year, with a gradual slowdown likely in 4Q24 as well as stable crude palm oil (CPO) prices.
According to the Malaysian Palm Oil Board (MPOB), there was a 5% quarter-on-quarter (q-o-q) and 7% year-on-year (y-o-y) rise in palm oil production for 3Q24.
Sarawak led with a 24% q-o-q rise in CPO production, with Sibu-based Ta Ann Holdings Bhd
achieving the highest growth among plantation companies at 32% q-o-q.
“Within our coverage, Ta Ann, Hap Seng Plantations Holdings Bhd and IOI Corp Bhd showed the strongest q-o-q production growth,” the research house noted.
On CPO prices, CGSI Research said the average local CPO price for 3Q24 was RM4,001 per tonne, which was flat q-o-q and up 5% y-o-y.
“We believe this factor boosted the companies’ earnings in 3Q24, supported by higher production growth and falling fertiliser costs,” it added.
CPO price has hit a two-year high of RM4,693 per tonne on Oct 28 from a low of RM3,860 in mid-August, appreciating 29% in ringgit terms and rose 36% in US dollar terms year-to-date (y-t-d).
This compared with soybean oil (SBO) price, which has declined by 14% y-t-d.
As such, CPO is trading at a premium to SBO so far this year, CGSI Research said.
On whether the uptrend in CPO price is sustainable, the research house said: “We maintain our CPO price forecasts at RM4,000 per tonne for 2024 and 2025.
“We reckon that CPO will be trading higher in 1H25, especially in 1Q25, where we expect it to trade at RM4,100 to RM4,500 per tonne.”
This is due to declining inventory levels for CPO towards end-2024, limited vegetable oil supply in the market, higher demand during festive seasons in 1Q25 (Chinese New Year and Ramadan) and implementation of Indonesia’s B40 mandate that may take up additional volume.
CGSI Research, which reiterated its “neutral” call on the sector, said most plantation companies had lagged the FBM100 year to date and are trading below their five-year averages.
