CPO prices have been trading above RM3,400 per tonne since early this year and reached a three-year high of RM3,906 on Feb 11. While CPO prices have declined slightly since, analysts have noted that plantation companies could expect a better showing for the period of January to March.
However, Sime Darby’s president and group CEO Datuk Mohd Bakke Salleh said its FFB production in January was affected by the floods in Malaysia and Indonesia and noted that February was a short month.
Moreover, he expects CPO to trade within RM2,800 to RM3,000 per tonne from now until June as production figures are expected to pick up from April onwards. May delivery for CPO declined RM59 to RM3,455 per tonne yesterday.
Nonetheless, Bakke said the group should still be able to hit its target net profit of RM2.5 billion for FY11 ending June 30 with potential upside to earnings as its initial target was based on CPO prices below RM3,000.
“Base on what we know now, we are expecting decelerated earnings growth in 3Q but it will pick up in 4Q. We are still sticking to our forecast of RM2.5 billion,” he said at a briefing yesterday.
Sime Darby's fresh fruit bunch production was affected by last month's floods.
For the second quarter ended Dec 31, Sime Darby’s net profit doubled to RM877.06 million from RM428.19 million a year earlier boosted by improved performance in its plantation, motors, industrial and energy & utilities (E&U) divisions. Revenue grew 22% to RM10.28 billion.
For the first six months, it posted a net profit of RM1.53 billion compared with RM1.11 billion in the previous corresponding period. The RM1.53 billion makes up 60% of its target net profit of RM2.5 billion for FY11.
The plantation division registered an operating profit of RM1.3 billion in 1HFY11, a 5% year-on-year (y-o-y) increase driven by higher CPO prices. During the six months, the division achieved an average CPO price of RM2,692 per tonne against RM2,222 in the corresponding period. In 2QFY11, it achieved an average CPO price of RM2,835 per tonne. Production of FFB, yield and oil extraction rate (OER) were lower as the floods continued to affect production.
“We had a commendable first half considering the weather disruptions experienced in our Malaysian and Indonesian plantations,” Bakke said.
Meanwhile, the industrial division generated an operating profit of RM456 million in 1HFY11, a 21% increase y-o-y largely due to higher growth in the construction and infrastructure industries in Malaysia and China. However, he noted that the floods in Australia may affect this division in the next quarter but expects it to pick up soon with repair works after the floods.
Its motor division posted an 87% increase in operating profit to RM277 million on the back of strong sales growth in China and Malaysia. BMW remained the biggest profit contributor and was the top selling luxury marque in Singapore, Hong Kong and Macau in 2010 where the group was the sole distributor.
The much talked about E&U division reported an operating profit of RM73 million for 1HFY11 thanks to the power and utilities businesses. Bakke said the oil and gas (O&G) business was still focused on its turnaround measures and its priority was to complete the ongoing projects on schedule.
Currently, it has two O&G projects, along with an order book of RM1.5 billion and has tendered for RM1.5 billion to RM2 billion worth of jobs.
“For the O&G, we will not take high risk jobs. Fabrication will be the thrust of the business. We have the expertise and the capacity,” he said.
Meanwhile, the property division recorded a 26% decline in operating profit to RM132 million in the first half of FY11 as contributions from the asset management and hospitality segments were lower. Nonetheless, the property development segment’s profit recorded a 9.4% increase to RM121 million. - by Joy Lee of theedgemalaysia.com
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