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KLK sees falling palm oil price, hedges production for protection

2017-05-26
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KLK sees falling palm oil price, hedges production for protection

PETALING JAYA: Plantation firm Kuala Lumpur Kepong Bhd (KLK) says it has hedged a portion of its future production to protect profits against the falling price of crude palm oil (CPO).

The company, in a filing with Bursa Malaysia yesterday, warned that rising CPO production in Malaysia could further depress CPO prices in the coming months.

“Nevertheless, with the results for the half-year already achieved, together with some committed forward sales, we expect a better performance from the plantation sector,” it said.

KLK posted a 71% jump in net profit to RM289.6mil in the second quarter ended March 31 on the higher selling price of CPO compared to previously.

The strong performance in the second quarter lifted the group’s half-year earnings to RM650mil. Analysts are projecting the company to make a net profit of RM1.2bil for the full year ending Sept 30, 2017 (FY17).

KLK said its revenue during the quarter had reached RM5.47bil, up from RM3.7bil previously. The company expects its profit for FY17 to be satisfactory.

KLK said it will pay an interim dividend of 15 sen a share to shareholders on Aug 8. The entitlement date for the dividend payout is July 17.

Plantation companies such as KLK are protecting themselves against the anticipated drop in prices by entering into contracts to deliver their future production at pre-determined prices.

KLK sees falling palm oil price, hedges production for protection

The CPO benchmark futures contract price on Bursa Derivatives fell 15% year-to-date to RM2,662 a tonne yesterday. The contract had reached a five-year high of RM3,185 a tonne in December.

KLK achieved an average price of RM2,999 a tonne for its CPO production in the second quarter, or 36% higher compared to what it had in the same quarter last year.

Plantation profit improved substantially to RM358.9mil during the quarter under review, compared with RM125.6mil last year, underpinned by strong CPO and palm kernel prices and the increase in fresh fruit bunch production.

The company, however, saw a lower contribution from the processing and trading operations.

The group’s manufacturing sector’s profit fell 48% to RM52.1mil despite the recognition of a higher unrealised gain of RM33.2mil from the fair value changes on outstanding derivative contracts.

Revenue climbed 43.9% to RM2.64bil mainly through better selling prices.

“However, the cost of raw materials had risen higher and this had trimmed margins,” it said.

Meanwhile. KLK’s oleochemical division’s profit halved to RM47.1mil and the profit from other manufacturing units was 15.6% lower at RM5mil.

“The oleochemical division’s business performance is anticipated to recover in the second half of the year with favourable raw material prices, but the market remains challenge.

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