PETALING JAYA: Planters are expected to post stronger third-quarter results for the financial year 2020 (FY20), thanks to the rally in crude palm oil (CPO) prices and higher production, say analysts.
According to CGS-CIMB Research, the anticipated higher third quarter (Q3) net profit by planters would be driven by a 36% year-on-year (y-o-y) rise in average CPO price at RM2,753 per tonne and 2.4% y-o-y rise in CPO production from the local estates.
“We also project Q3 net profit to be much better than Q2, with a 6.6% quarter-on-quarter (q-o-q) increase in output and 21% q-o-q rise in CPO prices, ” the research unit said in its latest report.
CGS-CIMB expects CPO prices to trade at RM2,500-RM3,000 per tonne range this month. Its average CPO price for 2020 is forecast at RM2,500 per tonne.
The key factors influencing CPO prices include the La Nina weather phenomenon’s impact on the oil seeds and palm oil supplies, China’s purchases to build up its stock reserve, and the policies on biodiesel mandates, added the research unit.
A plantation expert told StarBiz that “for planters, a mere RM100 increase in the CPO price per tonne could translate into a hefty contribution to group profits.”
He projected that every RM100 per tonne change in the CPO price “could result in an addition or reduction of RM250mil for Sime Darby Plantation Bhd while for FGV Holdings Bhd, it could be an addition or reduction of RM100mil.”
Meanwhile, AllianceDBS Research also envisaged that strong CPO prices would be able to raise Q3 FY20 earnings for planters.
It noted that the local palm oil stocks stayed firm at 1.7 million tonnes last month, thanks to the stable output at 1.87 million tonnes.
“This is despite being in the seasonally high production period of the year.
“On the back of the stable stockpile level in September and Indonesia’s steady biodiesel blending demand, we believe the current CPO price rally is likely to remain buoyant until end-2020, ” said the research unit.
In addition, the low palm oil stockpiles in importing countries India and China are expected to support palm oil exports.
Despite the higher prices, palm oil exports surprisingly held up well at 1.6 million tonnes in September.
AllianceDBS said palm oil imports by India would likely remain firm as Deepavali approaches while the stronger yuan may help to sustain China’s palm oil appetite for the rest of the year.
On La Nina, it expects the heavy rain to disrupt the chain of supply – from fruit harvesting to milling.
“This will hinder any production expansion in the second half of 2020, but such heavy rainfall can help nourish the land and will likely boost output in 2021.
“As such, we believe our CPO price forecast of US$617 per tonne for next year will hold on expectations that supply will normalise next year.
AllianceDBS also believes that most CPO stocks have yet to price in an average CPO price of more than US$600 per tonne due to concerns over a more sustainable economic recovery next year.
Its top buys plantation stocks include Kuala Lumpur Kepong Bhd, FGV Holdings Bhd and TSH Resources Bhd.