KUALA LUMPUR: Plantation companies recorded a mixed performance in the third quarter (Q3) earnings season, weighed down by lower crude palm oil (CPO) production, research firms said.
Hong Leong Investment Bank Bhd (HLIB Research) said out of the eight planters under its coverage that reported their quarterly results, three came in within expectations, three beat expectations, while two disappointed.
"During the quarter, lower-than-expected CPO production cost was the key reason behind the positive earnings surprise (for FGV Holdings Bhd, Hap Seng Plantations Holdings Bhd, and TSH Resources Bhd), while weaker-than-expected performance at the downstream segment was the key culprit behind the earnings shortfall (for both Kuala Lumpur Kepong Bhd and SD Guthrie Bhd)," it said in a note.
According to HLIB Research, CPO price averaged at RM4,155 per tonne to date, and it maintains the CPO price assumptions of RM4,200 and RM4,000 per tonne for 2024 and 2025.
"We maintain the view that CPO price will remain at elevated levels (possibly until the first quarter of 2025), supported by weak near-term output," the firm added.
Concurrently, the research firm keeps its "'neutral" stance on the plantation sector, as the elevated CPO price will likely not sustain over the longer term, due to palm's large price premium over other competing oils, particularly soybean oil.
Meanwhile, MIDF Research maintains a "positive" outlook on the sector with an average CPO price of RM4,200 per tonne for 2024.
The firm said the earnings mostly flattish to somewhat softened, dragged by the lower CPO production, despite the elevated average CPO price managed to realise.
It noted that the average selling price (ASP) of CPO during the period slightly dropped by 1.2 percent quarter-on-quarter (QoQ) to RM3,989 per tonne.
Following weaker fresh fruit bunch performance in Indonesia due to the lagging El Niño effect and dry weather conditions, MIDF Research said CPO production was softened, which resulted in a squeeze in margins due to low CPO sales volume compounded by fixed input costs in cost production items.