Plantation firms expected to post weak Q1 results

PETALING JAYA: Hong Leong Investment Bank (HLIB) Research expects plantation companies to report weak results as a recovery in crude palm oil (CPO) prices is offset by a sharp decline in production, especially for companies with large exposure to Sabah.
The research house said plantation stocks reported a double-digit, quarter-on-quarter (qoq) decline in fresh fruit bunch (FFB) production in the first quarter, ranging between 20% and 44%.
Among all, IOI Corp Bhd saw the sharpest decline in production (-44% qoq, -23.1% yoy), followed by Genting Plantations Bhd (-36.9% qoq, -10.6% yoy) and IJM Plantations Bhd
(-35.3%, -8.2% yoy).
Meanwhile, PublicInvest Research forsees earnings risk in 63% of the plantation companies under its coverage as their production suffered a severe beating in the first quarter. "However, improvement is expected beyond Q1'16 due to recovery in production while price remains elevated," it said.
HLIB Research concurred, but said CPO production growth is likely to be weaker compared with 2015 due to the El Nino-induced drought since last year. Demand for palm oil would improve in the coming months due to the upcoming Ramadan festive season in Jun-Jul 2016," it added.
The Malaysian Palm Oil Board (MPOB) reported a palm oil inventory level of 1.80 million tonnes on April 16, which was lower than market expectation of 1.82 million tonnes, attributed mainly to lower palm oil imports and better domestic consumption amid better production and weaker exports.
PublicInvest Research remains positive on CPO's outlook with an average price forecast of RM2,500 a tonne for 2016 and RM2,600 a tonne for 2017.