KUALA LUMPUR (Aug 23): Sime Darby Plantation Bhd said it expects its financial year ending Dec 31, 2023 (FY2023) to remain challenging, as its net profit for the second quarter ended June 30, 2023 (2QFY2023) fell by 53% to RM380 million, from RM812 million a year ago.

Based on its results disclosed on Bursa Malaysia on Wednesday (Aug 23), the group said its earnings were impacted by the lower average realised crude palm oil (CPO) and palm kernel (PK) prices.

In a separate statement, it said the realised CPO prices declined 28% year-on-year (y-o-y) to an average of RM3,765 per metric tonne (MT) in 2QFY2023, compared to RM5,213 per MT recorded in the previous corresponding period.

The group added that average realised PK prices declined by 47% y-o-y to RM1,767 per MT, from RM3,339 per MT in 2QFY2022, affected by the decline in demand in the oleochemicals industry.

With the decline in quarterly net profit, Sime Darby Plantation’s earnings per share dropped to 5.5 sen from 11.7 sen. Revenue recorded for 2QFY2023 fell 23% year-on-year to RM4.31 billion, from RM5.59 billion.

The group said its upstream segment was also affected by the marginal decline in fresh fruit bunch (FFB) production and lower oil extraction rate, exacerbated by higher operating expenditure, mainly from higher fertiliser prices and labour costs.

It explained that the reduction in FFB production was due to the group’s accelerated replanting programme in Indonesia to address poorer yielding and aged palm areas with new higher yielding planting materials.

Besides that, Sime Darby Plantation’s downstream segment reported lower revenue by 55%, affected by weaker profits from the Asia Pacific bulk and differentiated refineries due to lower margins and demand, and lower share of profits from a joint venture.

It elaborated that finance costs increased to RM49 million, due to higher interest rates affected by the increase in benchmark lending rates, partially mitigated by lower borrowings.

“Average interest rate was 5.1% per annum, as compared to 2.4% per annum in the corresponding quarter,” Sime Darby Plantation wrote in its review in the latest financial report.

Nonetheless, the group declared a dividend of 3.25 sen, albeit lower than the 10 sen paid out last year.

The latest quarterly results brings Sime Darby Plantation’s net profit for the cumulative six months ended June 30, 2023 (1HFY2023) to shrink 71% to RM449 million from RM1.53 billion a year ago. Six-month revenue was down by 16% to RM8.37 billion, from RM9.97 billion a year ago.

Moving forward, the group said price volatility is expected to continue in the near term, as geopolitical crises and global macroeconomic conditions add to prevailing uncertainties.

“The rebound in CPO and other commodity prices was mainly driven by the increasingly uncertain weather conditions in key oilseed regions, as well as the escalation of the Russia-Ukraine war,” it said.

As for FFB production, Sime Darby Plantation expects to see steady increase as the group progresses into the peak production period in the coming months.

“The group is optimistic that its FFB production will improve, as it continues to improve field conditions in its Malaysian operations,” it said.

“These efforts complement the group’s commitment to continue its transformational initiatives to mechanise, automate and digitalise its operations in Malaysia.”

Sime Darby Plantation’s share price was six sen or 1.37% lower at RM4.33 during Wednesday’s noon break, bringing it a market capitalisation of RM14.38 billion.