AFTER a poor first quarter, the plantation sector saw better quarter two calendar year 2024 (2QCY24) results from operations.

Upstream performance was lifted by improving upstream margins and better-than-expected downstream results. 

Despite better underlying business earnings, 2QCY24 performance was slightly below consensus expectation with 5 out of 9 results falling short of estimates. 

“As Kenanga was not as aggressive, SD Guthrie, HSPLANT and UMCCA exceeded our estimates and we deemed the plantation sector 2QCY24 performance as within our expectation, with 5 out of 9 results either met or exceeded our estimates,” said Kenanga research (Kenanga) in the recent Sector Update report.

Among those that disappointed Kenanga were: (a) KLK which saw poor downstream performance, (b) GENP which endured poorer harvest and higher cost, (c) PPB as its quarter two saw high relocation costs of cinemas and marketing spend by the consumer food segment, and (d) TAANN which earnings were dragged down by losses.at its timber division.

Thanks to firm or better palm product prices, lower cost and better harvest, 2QCY24 upstream pre-tax margins nudged up by about 300 basis points (bps) to 22% or close to the segment’s longer-term average. 

MPOB crude palm oil (CPO) price for 2Q of RM4,038 per megatonne (MT) was 1% firmer quarter-on-quarter (QoQ) but strengthened 5% year-on-year (YoY) to reach an average of RM4,011 for the first half of calendar year 2024 (CY24).

PK prices did even better, averaging at RM2,411 per MT (+9% QoQ, +21% YoY) for 2Q CY24 and RM2,316 YoY (+15%). 

Meanwhile, lower year-to-date prices for fertiliser (-28% YoY) and fuel (-5% YoY) coupled with covering fresh fruit bunch output (+10% YoY) helped contain unit CPO cost in 1HCY24. 

Moving ahead, some cost and wage inflation are likely to erode margins but better PK prices should help absorb some of potential upstream cost increments. 

Unlike quarter one where all three large integrated players failed to meet expectations due to poor downstream results, quarter two saw downstream performances turning around, improving margins by about 150 bps except for KLK. 

Both IOI and SDG reported much stronger downstream earnings as their European exports and operations saw better demand and margins driven in part by pending introduction of European Union Deforestation Regulation towards the end of CY24. - Sept 4, 2024 

https://focusmalaysia.my/better-q2-performance-for-plantation-sector-with-better-margins-from-upstream-downstream/