18 June 2019

Jakarta. The decline in crude palm oil (CPO) prices has eroded the net profit of CPO issuers. The performance of plantation issuers is predicted to be difficult to rise due to the weakening of low CPO prices.

PT Salim Ivomas Pratama Tbk (SIMP), for example, in the first quarter of 2019, this issuer posted a loss of IDR 31.26 billion. Meanwhile, the net profit of PT Sampoerna Agro Tbk (SGRO) fell 76.63% on an annual basis to IDR 3.85 billion.

To get around the sluggish CPO price, issuers in this sector have designed strategies to maintain performance. SGRO Head of Investor Relations Michael Kesuma said that the company encourages production by implementing best management practices.

SGRO explained cost-effective agronomic techniques and efficient use of production resources. “So the level of profitability can be optimized, with the condition of the selling price that is not yet optimal,” said Michael, Thursday (13/06).

This year, SGRO targets CPO production growth of 5%-10% compared to last year, while at the end of 2018, the production was 399,411 tons of CPO. As of the first quarter of 2019, CPO production volume reached 77,281 tons, an increase of 17% on an annual basis.
 

Downstream Focus

PT Mahkota Group Tbk (MGRO) will also boost its production. This issuer sets a production target of 203,308 tons this year. Meanwhile, as of April 2019 MGRO has produced 59,044 tons of CPO, or around 29% of the year's target.

To achieve this target, MGRO will focus on downstreaming by utilizing the new refinery plant. “The factory construction process has reached 70%. It is estimated that the new factory can operate in August 2019,” said MGRO Corporate Secretary Elvi, Thursday (13/6).

This year, MGRO allocates capital expenditure of IDR 200 billion for the downstream refinery and crushing plant which has a production capacity of 1,500 tons of cooking oil per day. The kernel crushing production line will produce 400 tons of palm kernel oil per day.

Mirae Asset Sekuritas analyst Andy Wibowo Gunawan predicts that global CPO prices this week are still at risk of decline. He predicts that Malaysia's crude palm oil production in April 2019 will be higher than the previous month. Therefore, he does not recommend any stocks in the CPO sector.

On the other hand, Binaartha Sekuritas analyst Muhammad Nafan Aji Gusta Utama said investors can maintain buying AALI and LSIP shares.