KUALA LUMPUR: The government’s move to raise the threshold price at which plantation companies pay windfall profit tax on crude palm oil (CPO) is mildly positive for plantation companies, says CIMB Equities Research. It said on March 11 the move, which was part of the RM60 billion stimulus package announced the previous day, would result in tax savings of up to RM75 per tonne for the Malaysian planters at CPO prices of between RM2,500 and RM3,000 per tonne. CIMB Research also said the higher threshold price would improve the cost competitiveness of Malaysian palm oil players against Indonesian ones. On March 10, Deputy Prime Minister Datuk Seri Najib Razak said the government would raise the threshold price at which plantation companies pay windfall profit tax on CPO. Hence, planters in east Malaysia will pay tax when CPO price is at least RM3,000 per tonne while those in Peninsular Malaysia will pay the windfall tax when CPO price reaches RM2,500. The threshold price was raised because of higher production costs. Currently, the tax kicks in when palm oil exceeds RM2,000 per tonne. It was not mentioned in the mini budget speech when the new tax rate will take effect. CIMB Research said to calculate the savings, it applied the difference between the new and old threshold CPO price to the windfall tax rate of 15% for Peninsular Malaysia and 7.5% for Sabah and Sarawak. This would raise the earnings sensitivity of Malaysian planters to changes in CPO price at above RM2,000 per tonne. Currently, the threshold price on CPO export tax in Indonesia was US$700 per tonne or RM2,500 per tonne based on an exchange rate of RM3.60 for every US$1. On the discrepancy in threshold price for Sabah and Sarawak and planters in Peninsular Malaysia estates,it said:“The east Malaysian planters enjoy a higher increase of RM1,000 per tonne in the threshold price to RM3,000 per tonne against a RM500 per tonne increase to RM2,500 per tonne for plantation companies in Peninsular Malaysia. “We believe the intention is to ensure that the planters enjoyed the same absolute tax savings after taking into account the higher windfall tax rate of 15% on Peninsular players against 7.5% for those in east Malaysia. CIMB Research said as a result of this move, estate owners in the peninsula would enjoy higher tax savings than the east Malaysian players when the price is between RM2,000 and RM3,000 per tonne. However, its earnings forecasts did not factor in any windfall tax as they assume average CPO prices of RM1,600 per tonne for 2009 and RM1,900 per tonne for 2010, which are below the previous threshold price of RM2,000 per tonne. “As a result, we are not revising our earnings forecasts for the Malaysian planters. We remain Underweight on Malaysian planters as the big-cap planters continue to trade at a premium over regional planters and our target market price-to-earnings,” it said. The research house said for exposure to the sector, it preferred the Singapore-listed planters. Key de-rating catalysts are falling prices for CPO and crude oil, improved weather prospects in South America and a weaker-than-expected global economy.
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