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Mahamad Rodzi Abdul Ghani




Mahamad Rodzi Abdul Ghani


Business Times



Imposition of cess not affecting plantation stocks
January 3 2004 - THE Government’s measure to impose cess on crude palmoil (CPO) producers to support cooking oil manufacturers has not affectedplantation counters.

Analysts and fund managers said investors had already factored in thedevelopment when it was announced over a week ago and made the necessaryadjustments.

If they feel the cess would have an impact on CPO producers’ earnings,some fund managers would have sold or bought plantation stocks during theannouncement. They would not do it now, an institutional dealer toldBusiness Times.

Many plantation counters closed lower yesterday generally because of theoverall low buying interest that hangs over the stock market at presentdue to the long year-end holidays. It has got nothing to do with the cess.

CPO producers started to pay cess to the Government from Thursday tosupport a scheme aimed at stabilising the country’s cooking oil prices.

The scheme was devised to reduce the burden of cooking oil manufacturersfollowing the strong CPO prices currently.

The cess is one of two sources to fund the Government-initiated DomesticCooking Oil Price Stabilisation scheme.

Under the scheme, producers will supply their CPO to cooking oilmanufacturers at a threshold price of RM1,450 a tonne despite the higheroffer price from the open market.

The Government, from the funds generated by the scheme, will compensatethe CPO producers for selling their commodity to cooking oil manufacturersat a discounted price.

The difference between the CPO market price and the Government-fixedcooking oil price is estimated to average RM300 a tonne for 2004. Thisamount has to be borne by the Government and the CPO producers.

Under the scheme producers will pay 50 sen cess for every RM10 increaseabove the RM1,450-a-tonne threshold CPO price. The CPO average priceincreased from RM1,400 a tonne to RM1,800 a tonne in the first quarter oflast year.

At the close, the Kuala Lumpur Plantation Index of the Kuala Lumpur StockExchange (KLSE) was a shade over 1 per cent lower, or 22.9 points to2186.7 points.

Out of the 37-member index, a total of 12 counters closed higher, 15 werelower while 10 were unchanged.

Top movers included Asiatic Development Bhd which gained 2 sen to RM1.77and TDM Bhd which increased 5 sen to close at 95 sen.

Top laggards included Golden Hope Plantations Bhd and Kumpulan GuthrieBhd. Both eased 14 sen to close at RM3.40 and RM2.45 respectively. IOICorp Bhd closed 5 sen lower at RM7.65.

Comparatively, between October 31 2003 and December 31 2003, thePlantation Index depreciated 0.56 per cent compared with the KLSEComposite Index (KLCI) minus 2.8 per cent.

In terms of total returns, the Plantation Index gave out total returns ofminus 0.51 per cent compared to the KLCI’s negative 2.2 per cent.

OUB-TA Asset Management Sdn Bhd general manager Mohd Hasnul Ismar MohdIsmail said the impact of the cess is minimal, affecting not more than 2per cent of the earnings of most plantation companies.

Investors would be concerned about CPO production cost which forms thebulk of expenses.

Besides the market has already reacted to this piece of news. On theconverse, plantation counters are expected to perform well in the near- tomedium-term due to stable CPO prices currently.

Mohd Hasnul said CPO prices would normally fluctuate at this time of theyear but it has buckled the trend at present, stabilising between RM1,600and RM1,800 a tonne for the past three months.