KUALA LUMPUR (April 27): United Plantations Bhd (UP) saw its net profit decline 30.43% to RM61.15 million in the first quarter ended Dec 31, 2015 (1QFY15), compared to RM87.75 million in the previous corresponding quarter, due to lower prices of crude palm oil (CPO) and palm kernel (PK), and higher production costs.

In a filing with Bursa Malaysia, UP (fundamental: 1.95; valuation: 1.7) also saw its 1QFY15 revenue dip 10.39% to RM233.92 million, compared to RM261.03 million in the previous corresponding quarter.

Basic earnings per share dropped significantly to 29.43 sen, compared to 42.23 sen in the previous corresponding period.

UP said the plantations’ segment profit before tax for the quarter decreased by 6.1% on-year due to the significantly lower CPO and somewhat lower PK prices, as well as higher costs of production for these two products.

As for its refinery segment, UP said it suffered a 57.3% drop in 1QFY15 as compared to the previous corresponding quarter, mainly due to a fair valuation of forward foreign exchange hedging position.

However, the company said a major portion of this provision is expected to be reversed within the current year, when receivables in foreign currency are received.

UP noted the Malaysian refinery sector has been under “extreme” pressure in 1QFY15, with margins coming under pressure due to the overcapacity within the Malaysian refinery sector, coupled with intense competition from the downstream sector of Indonesia.

On prospects, the company said with the recent drop on commodities prices, the operating environment has become more challenging.

“In accordance with its replanting policy, United Plantations will continue to replant large areas of its older and less productive oil palm stands in Malaysia, during 2015. All areas in its Indonesian operations are in production in 2015, which is expected to compensate for the crop loss from the replanted areas in Malaysia.”

“The improved growing conditions for South East Asia oil palm growers, coupled with expectation of a favorable soya bean harvest in the United States and South America, is likely to increase the supply of vegetable oils globally and with that, the world stocks of the seventeen oils and fats, it said.

“This will very likely have a negative effect on prices, as supply will increasingly exceed the demand,” the report read.

UP shares closed 30 sen or 1.13% higher at RM26.80, with a market capitalisation of RM5.57 billion.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)