By YVONNE TAN
PETALING JAYA: Mid-sized plantation company Kim Loong Resources Bhd has turned cautious on its outlook given the volatility in crude palm oil (CPO) prices and a challenging business environment. Managing director Gooi Seong Heen said the company was expected to post significantly lower third quarter results ended Oct 31 due to the sharp decline in CPO prices. “Yes, the severe decline will have a great impact on our third quarter profits,” he told StarBiz. “However, we are hoping that contributions from our downstream and expansion activities in areas like bio-fertliser and bio-gas can help mitigate the extent of loss in profits.”
For its second quarter, Kim Loong, which has a market capitalisation of close to RM500mil, made a net profit of RM27.7mil or 12.92 sen per share.
Since July, CPO prices have fallen more than 50% to RM1,520 per tonne as at yesterday afternoon.
Against its record RM4,486 per tonne in March, CPO price has plunged about 70%.
The company’s production cost is around RM1,300 per tonne. Kim Loong’s profit margin has declined from more than 100% when CPO price was above RM3,000 to about 20% at current prices, according to Gooi. He said Kim Loong could continue to perform well if CPO prices stayed at “a more reasonable’’ price range of RM2000 to RM2500 per tonne. OSK Research has projected CPO prices at between RM1,650 per tonne for 2009 and RM1,900 for 2010.
The research house said in a recent report that it believed CPO prices had hit rock bottom.
“But a new upcycle cannot begin until the high inventory tapers off, which is likely to happen as both Malaysia and Indonesia are implementing a mandatory biodiesel blend,” it said in a note to clients.
Gooi considers his company one of the more efficient ones around. “Our estates’ yields are at an average of 24 tonnes per hectare per year,” he said. The national average yield is less than 20 tonnes per hectare annually. Top plantation companies generally extract 30 tonnes or more.
On dividend payouts, he said the company would maintain its dividend payout policy of 30% of net profit.
Shares in Kim Loong closed at RM1.60 yesterday, which according to Bloomberg’s 2009 consensus estimates, was trading at an estimated 4.6 times price to earnings.
By YVONNE TAN The Star Newspaper 13/11/08
