Friday 29 Mar 2024
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KUALA LUMPUR (Nov 13): Kuala Lumpur Kepong Bhd (KLK), Felda Global Ventures Holdings Bhd (FGV), Genting Plantations Bhd (GENP) and PPB Group Bhd fell on expectation of weaker plantation sector quarterly financial results.

Analysts said oil palm plantation companies' financials might have been weighed down by weaker crude palm oil (CPO) selling prices despite strong production growth.

At 11am, KLK shed 52 sen or 2.26% to RM22.48 while FGV dipped 11 sen or 3.05% to RM3.50.
GENP dropped 10 sen or 0.95% to RM10.40 while PPB declined 12 sen or 0.8% to RM14.92.

KLK, FGV, GENP and PPB were among the top decliners across the local bourse.

At 12.30pm,KLK settled at RM22.74, FGV at RM3.49, GENP at RM10.34 and PPB at RM14.94.

UOB Kay Hian wrote in a plantation sector report today that plantation companies were likely to report flat quarter-on-quarter third quarter (3Q) results. This was despite strong production growth across companies due to weaker CPO average selling price (ASP) during the quarter.

UOB Kay Hian noted that downstream operations would be affected by thin refining margins after the Malaysian government exempted its CPO exports from tax.

“Since CPO producers prefer to export CPO, refiners face difficulty in sourcing for raw materials,” UOB Kay Hian said.

UOB Kay Hian is maintaining its “market weight” rating for the plantation sector as “there is no strong catalyst to send CPO prices to the recent high of RM2,900 per tonne due to ample edible oilseeds supplies.”

The research house is maintaining its CPO price assumptions at RM2,400 per tonne for 2014, RM2,525 (2015) and RM2,600 (2016).

UOB Kay Hian said competitive downstream profit margin was likely to continue. This might have affected downstream performance for integrated players such as IOI Corp Bhd, Sime Darby Bhd and KLK in 3Q.

“Moving forward, we expect production growth to slow down after the peak in 3Q14 as we are entering into low production season and due to the lagged impact from 1Q14’s dry weather in both Malaysia and Indonesia.

"Although CPO prices have been recovering on the back of low production growth, we are expecting a more gradual recovery. This might continue to affect the earnings performance of plantation companies in 4Q14,” UOB Kay Hian said.

 

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