Sime Darby Plantation sees CPO ASP at RM2,500 a tonne till year-end

Mohd Bakke believes that CPO prices may have hit the bottom, with expectation of upside moving forward on the back of Indonesia's B20 biodiesel mandate, as well as overall general rising sentiments for palm oil. Photo by Kenny Yap

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SUBANG (Aug 30): Sime Darby Plantation Bhd expects crude palm oil (CPO) average selling price (ASP) to hover around RM2,500 a tonne till the end of the year on improved sentiments in tandem with movements of crude oil price.

"On our part, we expect ASP to hover between RM2,250 and RM2,500 per tonne from now till December. But ultimately, market forces will be the key determinant," the group's executive deputy chairman and managing director Tan Sri Mohd Bakke Salleh told a press briefing to announce its fourth-quarter 2018 results today.

The benchmark palm oil contract for November delivery on the Bursa Malaysia Derivatives Exchange closed at RM2,247 per tonne today.

Mohd Bakke believes that CPO prices may have hit the bottom, with expectation of upside moving forward on the back of Indonesia's B20 biodiesel mandate, as well as overall general rising sentiments for palm oil.

On Malaysia's CPO production level this year, Mohd Bakke said a slight drop is expected from what was achieved last year on the back of external factors such as the US-China trade dispute.

Malaysia produced 19.92 million tonnes of palm oil in 2017, according to data from the Malaysian Palm Oil Board.

"In 2019 and 2020, we expect a slight increase (in Malaysia's CPO production) from what it would achieve this year. The production goes through a cycle.

"We had a good year in 2017 up to early part of 2018. The ballpark figure we're looking at is 20 million tonnes for Malaysia. Indonesia is different because there are new areas coming into maturity hence their figure is growing every year," he said.

Sime Darby Plantation saw net profit tumble 99% year-on-year (y-o-y) to RM30 million in the fourth financial quarter ended June 30, 2018 (4QFY18), from RM2.63 billion, which the group blamed largely on non-recurring impairment charges, as well as lower recurring profit before interest and tax amid weaker crude palm oil and palm kernel prices.

Earnings per share fell to 0.4 sen from 38.6 sen in 4QFY17. Quarterly revenue fell 16% y-o-y to RM3.08 billion from RM3.69 billion.

The non-recurring impairment charges in the current quarter under review primarily consisted of an impairment charge of RM112 million relating to the group's long-term assets in Liberia and an impairment charge of RM157 million in its investment in Verdezyne Inc, which is an associate company.

The decline in earnings, however, was mitigated by lower finance costs of RM44 million arising from lower borrowings during the quarter under review.

For the full FY18, Sime Darby Plantation's net profit fell to RM1.73 billion from RM3.51 billion the previous year, while revenue was lower at RM14.37 billion versus RM14.78 billion in FY17.

Nevertheless, the group has recommended a final dividend of 8 sen per share, together with a special interim dividend of 3 sen, for FY18, which are subject to approval by shareholders at the forthcoming annual general meeting.

Sime Darby Plantation shares closed 2 sen or 0.38% at RM5.36 today, with 6.62 million shares done, for a market capitalisation of RM36.11 billion.