KUALA LUMPUR: The forthcoming results season, which starts on February 20, is expected to yield a mixed bag of results from companies in the plantation sector.
On the basis of flattish fresh fruit bunch (FFB) production increases and lower crude palm oil (CPO) prices, most firms are likely to report flattish to poorer quarterly upstream profitability, according to Hong Leong Investment Bank (HLIB) Research.
"During the quarter, planters with exposure in Indonesia fared weaker than those in Malaysia, and we believe this was due mainly to the dry weather experienced in Indonesian estates earlier.
"Earnings performance at the downstream segment, on the other hand, will likely remain subdued in the fourth quarter of 2023 (Q4 2023) on the back of weak near-term demand prospects arising from a weak global economic environment," it said.
Zooming in on selected individual planters, Hap Seng Plantations Holdings Bhd will post sequentially stronger earnings in Q4, mainly on the back of seasonally stronger FFB output (13.7 per cent) and potentially stronger CPO sales volume, albeit partly weighed down by a lower CPO price).
IOI Corporation Bhd will see improved earnings performance in the upstream segment buoyed by an 11.5 per cent quarter-on-quarter (QoQ) increase in FFB production, and lower CPO production costs will likely be weighed down by weaker performance in the manufacturing segment.
On a yearly basis, the firm expects higher output to be moderated by lower CPO prices and higher production costs.
"Planters will likely report flattish YoY upstream earnings, as generally higher FFB output will be moderated by lower CPO prices and higher production costs.
"Except for FGV, all planters under our coverage registered positive YoY FFB output growth in Q4 2023, due mainly to FFB yield recovery in Malaysian operations.
"We believe the decline in FGV's FFB output was due mainly to labour shortage and less favourable weather conditions," it said.
HLIB maintained 2024–2025 CPO price assumptions of RM4,000 per tonne and RM3,800 per tonne.
It also maintained a 'neutral' stance on the sector.