Palm oil producers report better numbers, but improvements may not be sustainable

SINGAPORE (May 23): Palm oil counters have been among the standout performers in this quarter’s earnings season. All but one have reported stronger revenue and earnings growth in the quarter ended March, based on a list of six companies compiled by The Edge Singapore as at May 17. The exception was Golden Agri-Resources, which posted a 60.1% decline in earnings to US$37.6 million ($52.2 million) on higher expenses and foreign exchange losses. Nevertheless, its revenue improved 37% to US$2.1 billion from US$1.5 billion a year ago. Meanwhile, First Resources was the best performer. Its earnings surged 807% to US$48.5 million from US$5.3 million a year ago. Revenue increased 71.6% to US$194.1 million.

Several planters have attributed their strong results to higher average crude palm oil prices in the quarter, as well as improved production volumes and yields. CPO prices averaged RM3,099.60 for the three months ended March, according to Bloomberg data, up 25.6% y-o-y from RM2,467.40.

But investors should not expect a repeat of this performance in the second quarter. Palm oil production in Malaysia — among the world’s largest exporters of the commodity — surged 18.2% in the first four months of the year, to 5.5 million tonnes from 4.7 million tonnes, according to the Malaysian Palm Oil Board. This was largely due to favourable weather conditions. In the same quarter last year, droughts related to the El Niño weather cycle had crimped production.

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