This article first appeared in The Edge Financial Daily on November 15, 2018

KUALA LUMPUR: Plantation player Kuala Lumpur Kepong Bhd (KLK), on announcing that net profit for the fourth quarter of its financial year 2018 (4QFY18) has slumped 58.1% year-on-year (y-o-y) on weaker crude palm oil (CPO) and palm kernel (PK) prices yesterday, warned that its performance in the first half of FY19 will continue to be affected by prevailing depressed palm product prices.

Its net profit for 4QFY18 ended Sept 30, 2018 fell to RM101.5 million from RM242.12 million a year ago, pulling earnings per share down to 9.5 sen from 22.7 sen.

Revenue shrank 18.8% to RM4.19 billion from RM5.16 billion as contribution from its plantations and manufacturing divisions fell, although this was partly offset by an improvement in revenue from the group’s property development segment.

Average CPO ex-mill price per tonne was lower by 19.4% at RM2,060 from a year ago, while average PK ex-mill price per tonne was down 26.3% at RM1,594, KLK noted in its stock exchange filing yesterday.

For the full FY18, KLK recorded a 25.1% y-o-y drop in net profit to RM753.33 million from RM1.01 billion, as revenue retreated 12.4% to RM18.4 billion from RM21 billion.

On current year prospects, KLK said the current high CPO inventory level has negatively impacted palm product prices. “While we expect FFB (fresh fruit bunch) production to improve, the current uncertainty in palm product prices will pose a challenge to our plantation profit for financial year 2019,” it said.

Meanwhile, its oleochemical division is expected to maintain its performance with higher capacity utilisations and operational efficiencies.

KLK is 47% owned by Batu Kawan Bhd, which also announced yesterday a 50.9% y-o-y fall in net profit for its 4QFY18 ended Sept 30, 2018 to RM71.24 million from RM145.01 million, on weaker CPO and PK prices. Revenue was down 18.5% to RM4.32 billion from RM5.3 billion.

Earnings per share declined to 17.75 sen from 35.88 sen in the year-ago quarter.

The group’s manufacturing division, which includes its oleochemical operations, also recorded lower profit contribution as it was affected by weaker margins in its Europe operations. While its property development division registered slightly higher profit, its investment holdings division recorded substantially higher loss.

For the full FY18, the group’s net profit declined 20.7% y-o-y to RM465.48 million from RM586.65 million, while revenue dropped 12% y-o-y to RM18.97 billion from RM21.55 billion.

Shares in KLK rose two sen or 0.08% to close at RM24.92 yesterday, giving it a market capitalisation of RM26.54 billion. Batu Kawan rose six sen or 0.36% to RM16.86, valuing it at RM6.75 billion.