IOI Corp Expects Strong CPO to Support Profits in Coming Two Quarters
16/11/2020The Star

KUALA LUMPUR: Higher palm oil prices boosted IOI Corp Bhd earnings in the three-month ended Sept 30, a trend the planter projected to continue in the next two quarters.

Net profit surged to RM277.9mil compared with RM149mil made in same quarter last year, the company told Bursa Malaysia in a filing today.

Revenue increased to RM2.48bil from RM1.78bil previously. IOI Corp said its profits was supported by total net foreign currency translation gain of RM98.5mil.

Excluding the one-time gain, its profit was 21% higher from a year ago.

Crude palm oil prices on Bursa Derivatives, the global benchmark, reached an eight-year high this month.IOI predicted that prices will remain above RM3,000 a tonne until February 2021 due to low palm oil inventory and seasonal low crop production.

However, it said narrowing price discount against other competing vegetable oils and the coming winter in the Northern Hemisphere will dampen its demand.

"For our plantation segment, oil palm crop production is expected to decline until January or February 2021 due to the low production season," IOI Corp said.

"Although the operations in the plantations are not directly affected by the Conditional Movement Control Order (“CMCO”)’s restrictions, the freeze on new intake of foreign workers by the government has resulted in labour shortage which has become more severe as months go by," it added.

"Nevertheless, due to the strong palm oil price forecasted until February 2021, we expect good financial performance from our plantation segment at least for Q2 and Q3 of FY2021," it said.

IOI Corp said the high CPO prices will hurt its refinery business.

"Refining and fractionation margins are expected to be negative or near breakeven due to the high CPO price and lower sales during the winter months in the Northern Hemisphere," it said.

As for the oleochemical sub-segment, the rapid rise in palm kernel oil (PKO) and palm stearin prices recently will affect the products margins and profit.

"Sales volume is not expected to be materially affected due to the healthy demand from the soap and personal hygiene industries and the growth in China’s economy, although the new wave of the COVID-19 infection cases in Europe will affect the economy there," it said.

"In our specialty fats sub-segment comprising our associate company Bunge Loders Croklaan, the high palm oil price and the new wave of COVID-19 cases in Europe are expected to similarly affect its performance.

However, the demand for snack food consumed at homes is expected to remain strong in USA and parts of Asia" it said.

The company expects the US dollar to remain soft after the election of Joe Biden as the new President of America, as concerns over the US-China and US-Europe trade wars wane.

"This will result in less fluctuation in the translation gain or loss on our USD-denominated borrowings," it said.

"Due to the strong palm oil price, the Group’s financial performance for Q2 and Q3 of FY2021 is expected to be good. However, the new wave of COVID-19 infection cases in Malaysia and Europe has made operating conditions difficult and cast some uncertainties on the financial performance of the Group for Q4 of FY202," IOI Corp said.