It expects wet weather to drive down palm oil output and stock.

KUALA LUMPUR: IOI Corp Bhd, whose net profit plunged to RM19.6mil in the second quarter ended Dec 31, 2014, expects crude Palm Oil (CPO) to hover within the range of RM2,150 to RM2,370 per tonne over the next two months.

The plantation giant said this was underpinned by the wet-weather induced lower production and lower stock but capped by the record high soybean production.

In the medium term, CPO price is expected to be supported by the Indonesia’s move to increase its biofuel subsidy and the expected increase in palm oil consumption after the abnormally cold Northern Hemisphere winter.

IOI Corp’s net profit dropped steeply in the second quarter mainly due to higher net foreign currency translation loss.

“The group pre-tax profit for second quarter to Dec 31, 2014 amounting to RM94.6mil is 65% lower than RM268.3mil in the preceding quarter attributable mainly to higher net foreign currency translation loss on foreign currency denominated borrowings.

“Excluding the net foreign currency translation loss of RM273.6mil on foreign currency denominated borrowings, the underlying pre-tax profit of RM368.2mil for second quarter is 15% higher than the underlying pre-tax profit of RM320.5mil for first quarter ended Sept 30, 2014,” IOI Corp said in the notes accompanying its financial results.

IOI Corp said the expected volatility of dollar-ringgit exchange rate would continue to impact the non-cashflow forex translation gains or losses on mostly medium- to long-dated US dollar-denominated borrowings in its reported results.

“However, we expect the group’s underlying performance for the remaining financial period of 2015 to be satisfactory,” it said.

Going forward, IOI Corp said its Indonesian plantation subsidiary was expected to increase its fresh fruit bunch (FFB) production substantially due to the young age profile of its trees. The completion of its oil mill in Indonesia during the first quarter of the financial year 2015 (FY15) will help to increase the efficiency and profitability to its Indonesian operations.

“In addition, we also expect higher contribution from our associate in Indonesia, Bumitama Agri Ltd in view of their increasing FFB production as their palm trees enter prime age. In the resource-based manufacturing segment, the group expects its specialty oils and fats and oleochemicals sub-segments to perform satisfactorily given the resilient demand from both the food and oleochemicals sectors,” IOI Corp said.

In the second quarter, revenue slipped marginally to RM2.88bil from RM2.93bil while earnings per share were 0.31 sen compared with 7.62 sen. IOI Corp declared an interim dividend of 4.5 sen compared with eight sen a year ago.

Commenting on its second-quarter financial performance, IOI Corp said its plantation profit fell 4% to RM297.3mil compared with RM310.2mil a year earlier. The lower profit was due mainly to lower crude palm oil (CPO) and palm kernel prices realised, mitigated by higher CPO extraction rate.

IOI Corp said average CPO price realised for the second quarter FY15 was RM2,187 a tonne, compared with RM2,424 previously.

As for the resource-based manufacturing, excluding the unrealised fair value loss in foreign currency forward exchange contracts for both second quarter FY15 and second quarter in FY14, the underlying profit for resource-based manufacturing segment slipped 19% to RM215mil from the underlying profit of RM265mil.

“The lower resource-based manufacturing underlying profit is mainly due to lower margin from oleochemicals sub-segment,” it explained.

For the first six months ended Dec 31, 2014, IOI Corp’s earnings slumped 75.1% to RM196.2mil from RM788.9mil in the previous corresponding period. Its revenue for the period fell 277% to RM5.9bil from RM6.17bil.