IJM Plantations’ replanted Desa Talisai estate in Sandakan.
KOTA KINABALU: IJM Plantations Berhad (IJMP) posts second consecutive quarter of strong performance with net profit of RM57.42 million.
Revenue and net profit for full financial year, FY2021 are the Group’s highest ever due to favourable palm commodity prices and higher crude palm oil (CPO) volume sold.
Despite challenging operating conditions due to the Covid-19 pandemic and adverse weather conditions during the year, the combined crop production of the Group’s Malaysian and Indonesian operations was marginally higher and totalled above one million metric tons for the second consecutive year.
IJM Plantations Berhad, chief executive officer and managing director Joseph Tek Choon Yee, shares the following insight in a recap of the Group’s performance and going forward in terms of CPO production and price outlook.
“Our group started last financial year FY2021 from a low base of CPO per metric tonne at around RM2,300 in April 2020 which nose-dived to a low of RM2,000 a month later before it gradually moved up to RM3,600 by end of December 2020, but we were blessed with a continued upward trajectory to above RM4,000 by the end of our financial year,” he said.
Tek in a statement on Thursday pointed out that bullish palm oil price over the period was influenced by an interplay of numerous factors with CPO price soaring in parallel with gains of the other edible oils especially the soybean complex, crude oil price dynamics and its biodiesel linkage, pick-up in demand from importing countries set against draw-down in importers’ inventories respectively, market expectation of lower CPO production due to labour shortage and weather impact, and forecast of La Nina weather.
And all these intertwined price-positive factors are set against the backdrop of growing optimism in anticipating demand building up post the Covid-19 pandemic, he said.
Moving into a new financial year, Tek said IJM Plantations Berhad has taken cognisance that many analysts are expecting the buoyant CPO price trend to sustain only until mid of this year before the price starts to ease.
It is possible that the current bullish run may not to be sustainable as the seasonal crop production momentum picks up in the second half of the year, he said adding, “In fact, we witnessed MDEX’s CPO spot month dipping significantly close to RM500 per metric tonne of CPO just over last one week, from RM4,839 on 18 May 21 to RM4,375 on 25 May 21”.
Notwithstanding that there could be a price correction, the extent of the CPO price decline is not easy to quantify, he stressed.
There may be some price cushioning-effect from the supply side as this year’s CPO production may disappoint earlier production forecasts, said Tek.
According to him, many CPO production areas continue to be hampered by acute labour shortages amid the Covid-19 pandemic resulting in continued crop losses.
There is also the aftermath from earlier high rainfalls resulting in lower oil extractions from poorly pollinated bunches ie. parthenocarphy effect, while many plantation maintenance including fertiliser application have been carried forward due to weather and labour shortages, he lamented.
“And the problem of aging and tall oil palm trees lingers. In addition, amid the Covid-19 pandemic, there may be additional restrictions rolled out by authorities in producing countries that may curb production and also disrupt palm oil supply-chain,” he said.
Tek added that CPO futures may see price downward correction set against the various bearish factors; but may also be set against a lower-than-expected CPO production to fit into the supply-demand equation.
At present, there is also a huge price premium of competing vegetable oils against palm oil, he said.
“And lately, procurement and supply-chain of agri-inputs fertilisers have been reported to be affected by higher prices, production and logistic woes. CPO remains in an ‘unchartered zone’ for measurable price discovery – amid interplay of many uncertainties”,” he pointed out.
Touching on the prospects for 2022, Tek said the prevailing buoyant palm product prices are expected to support the Group’s financial performance in the coming financial year.
The Group, he said, estimates its CPO price sensitivity at around RM23 million in profitability for every RM100 per metric tonne movement in CPO price.
“In the bourse filing today, IJM Plantations said that the Group’s optimism for a favourable performance for coming financial year will largely depend on the movements in palm product prices that are driven by the forecast of CPO prices remaining elevated, barring any volatility in the foreign exchange rates,” he disclosed.
Going forward, the Group’s oil palm prime age profiling in the Indonesian operations of nearly 60 per cent total Group planted area with a weighted average age of 9.8 years will continue to place the Group in a favourable spot to capitalise on crop production growth.
The Group, he pointed out, has substantially completed its replanting programme in the Sandakan region in its Malaysian operations and good yields are already showing following the use of advanced planting material and continued employment of best plantation practices.
“The Group’s operations were not significantly impacted by the Covid-19 pandemic being an essential sector. The priority is on the safety and health especially of our employees and their families, the job security of all our employees and our sustained commitment to a performance-driven culture and sustainable practices,” he said.