KUALA LUMPUR (Feb 23): Plantation stocks retreated on Friday as a slew of weaker-than-expected earnings in the sector stoked concerns over further upside in share prices following the recent rally.

Sime Darby Plantation Bhd, the latest to announce its results, slipped 1.56% to RM4.43. Kuala Lumpur Kepong Bhd (KLK) fell 2.18% to RM22.36 and TA Ann Holdings Bhd declined nearly 4% to RM3.65, both of which have earlier released lower-than-expected quarterly earnings.

The current weakness was likely due to profit-taking, as shares have surged on the back of a rally in crude palm oil futures, said Rakuten Trade analyst Thong Pak Leng. Going forward, however, earnings would only improve if crude palm oil prices rise and stay above RM4,000 per tonne, he noted.
 

Bursa Malaysia Plantation Index, which tracks 40 stocks in the sector, had earlier hit a 20-month high after racking up nearly 5% gain so far this year.

Prices of the edible oil used in everything from lipstick to soap have climbed about 4% year-to-date, amid supply concerns, as the El Nino weather conditions stress oil palm trees, threatening fruit yield.

Apex Securities head of research Kenneth Leong expects subdued growth in earnings ahead, with palm oil prices hovering between RM3,800 and RM4,000 per tonne.

The benchmark three-month palm oil futures were trading at RM3,822 per tonne on Bursa Malaysia Derivatives.
 

On Thursday (Feb 22), Sime Darby Plantation reported that its net profit had tumbled more than 64% to RM200 million for the three months ended Dec 31, 2023 (4QFY2023) from RM562 million a year before, weighed by lower average realised prices.

Quarterly revenue decreased 6.88% to RM5.28 billion, from RM5.67 billion recorded for 4QFY2022. For the full year of FY2023, it posted a net profit of RM1.86 billion, 25.24% lower than RM2.49 billion a year earlier. Annual revenue declined 12.37% to RM18.43 billion, from RM21.03 billion previously.

A majority of 10 out of 17 analysts covering Sime Darby Plantation have hold calls on the stock.

Earlier this week, both Batu Kawan Bhd and its 47.74%-owned KLK reported lower earnings for the first quarter of financial year 2024 (1QFY2024), dragged by the losses incurred in the manufacturing and farming segments. 

KLK’s net profit dropped 49% year-on-year to RM226.94 million in 1QFY2024, compared to RM443.04 million a year ago. Quarterly revenue contracted 16% to RM5.64 billion from RM6.71 billion.

Both Sime Darby Plantation and KLK expect palm oil prices to stay around current levels this year.

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