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 Mahamad Rodzi Abdul Ghani
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 Plantation firms face double-blow to profitability

15 October 2001 (Business Times) - MANY plantation companies had hopedthat by going into property development, they would be less exposed to thevagaries of the palm oil market. But with the lower demand for homes andoffices of late and palm oil prices remaining soft, these companies nowface a double-blow to their profitability.The outlook for both the property and plantation sectors in the nextquarter is not good, analysts said.“Previously, when prices of crude palm oil (CPO) fall, these companies cancount on property project earnings to serve as a buffer... which is notthe case in the current circumstances,” one said.The global economic slowdown has seen CPO prices easing while creatinguncertainties that affect property demand, thus threatening to take theshine off these companies’ shares, he said.Among plantation companies exposed to property development are KumpulanGuthrie Bhd and its subsidiaries Highlands & Lowlands Bhd and GuthrieRopel Bhd.And IOI Corp Bhd is involved in the sector through IOI Properties Bhd.Such plantation companies have a combined weightage of about 31 per centon the Kuala Lumpur Stock Exchange (KLSE) Plantation Index.According to the valuation and property services department, the totalnumber of unsold properties comprising houses, shops and industrial unitsfell 25.4 per cent to 46,315 units as at June 2001 from 62,051 units as atend-December 2000.However, total residential stock edged up 1 per cent to 2.6 million unitsin the second quarter from the first three months of the year.“Consumer confidence and spending may weaken... I think only companieswith good landbank in good locations are in a good position to weather thedecline in demand,” said another analyst.Likewise, investing in companies with commercial and industrial propertiesshould be guarded, he added.The palm oil sector, meanwhile, has an estimated stock of 1.17 milliontonnes as at end-September, up 290,000 tonnes from a month earlier.While Malaysia is facing pressure to increase exports in order to reducethe stock and buoy prices, rival producers — especially Indonesia — havebeen flooding the market with the commodity.“But plantation companies generally remain fundamentally strong,” theanalyst said.Unfortunately, investors are ignoring their positive attributes, such asstrong net tangible assets and low levels of borrowings.Still, the KLSE Plantation Index has outperformed the bellwether KualaLumpur Stock Exchange Composite Index (KLCI), despite most plantationcompanies posting weak quarterly earnings.The KL Plantation Index even managed to rise to a 52-week high of 1,639.55points on August 27, up from its year-low of 1,248.99 points on April 10.But in the past two weeks, the Plantation index has been falling at afaster pace than the KLCI.It lost 2.17 per cent and the KLCI 0.97 per cent between September 28 andOctober 11. Most analysts attribute the fall to the military attack by theUS on Afghanistan.Exports to Pakistan, Egypt and other consumers in West Asia account forabout 10 per cent, or 100,000 tonnes of, Malaysia’s monthly shipments ofthe commodity.India is Malaysia’s single largest market for CPO followed by the EuropeanUnion, China, Pakistan and Egypt. Collectively, they buy 61.5 per cent ofMalaysia’s palm oil.The long-term outlook for palm oil, however, remains intact given thevarious measures already taken by the Government, including entering intocounter-trade arrangements for the commodity.

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