Plantation Outlook Maybank expects stronger plantation profits in 1Q14

by **Cals** Tue 06 May 2014, 17:21

Plantation Outlook Maybank expects stronger plantation profits in 1Q14

Business & Markets 2014

Written by Ahmad Naqib Idris Adzman Shah of theedgemalaysia.com

Tuesday, 06 May 2014 10:57

KUALA LUMPUR (May 6): Maybank Investment Bank Bhd expects stronger results for plantation companies in the first quarter of 2014, on the back of high crude palm oil (CPO) and palm kernel (PK) prices during the quarter, compared to a year ago.

“The industry enjoyed relatively high CPO and PK average selling prices (ASPs) in 1Q14 due to concern over supply as dryness was experienced in parts of Peninsular Malaysia and Sumatera between mid-Jan 2014 and end-Feb 2014,” said Maybank in a note today.

The research house said that results of companies under its coverage will mostly be in line with expectations, with TSH Resources Bhd, Sarawak Oil Palms Bhd and Ta Ann Holdings Bhd to post the highest upstream plantation profits.

Quarter-on-quarter, however, Maybank said that earnings will be seasonally weaker as the fourth quarter is typically the strongest production quarter for most plantation companies.

The research house also expects selected planters with exposure to Indonesia which finance their operations with US dollar-denominated debt to post some unrealised foreign exchange translation gains in 1Q14, as the rupiah strengthens against the dollar.

On CPO prices, the research house maintained its forecast of RM2,400/t to RM2,600/t in May and June 2014, as South American harvests hit the market, US soybean planting starts, while the market factors in stronger CPO output in 2H14.

“Key risk to our view is the return of a strong El Nino in 2H14. For now, the weather forecast models globally are predicting a possible return of El Nino and probably working on the assumption of a weak El Nino,” said Maybank.

The research house has kept its "neutral" recommendation on the plantation sector.