This article first appeared in The Edge Malaysia Weekly, on May 16 - 22, 2016.

LOWER crude palm oil (CPO) and palm kernel prices have hurt Genting Plantations Bhd. In its financial year ended Dec 31, 2015 (FY2015), the planter saw its profit for the fourth quarter halved to just RM59.4 million from RM137.68 million a year ago. Revenue fell 26.7% to RM424.4 million, from RM579.01 million, the year before.

At the time of writing, Genting Plantations’ share price had tapered off from a high of RM11.56 in February, just before the company’s FY2015 financial results were released, to trade at RM10.62.  The company’s warrants, GENP-WA, offer a slightly lower entry point to investors eyeing the company’s shares.

The warrants were trading at RM2.72 apiece last Wednesday and were at a slight discount to the underlying share. The company had issued the warrants that can be exercised anytime up to their expiry on June 17, 2019, based on a 1:1 ratio at an exercise price of RM7.75. Based on that last price, GENP-WA is trading at a 1.44% discount to the underlying share, which closed at RM10.62 last Wednesday. 

Meanwhile, there is reason to believe things could get better this year.

First, the company expects its fresh fruit bunch (FFB) production to improve in 2016. According to CIMB Research — which is “neutral” on the sector, but has Genting Plantations as one of its top stock picks — the planter will maintain its 6% to 7% FFB production growth for 2016 despite lower rainfall at some of the company’s estates in 2H2015. The group indicated that its Peninsular Malaysia estates may report a 4% rise in FFB output and its estates in Indonesia a 43% jump. This is expected to soften the impact of the projected 7% drop in output from its Sabah estates this year.

Secondly, CPO and palm kernel prices are starting to pick up again after a subdued 2015. Year to date, the CPO price has averaged RM2,485 per tonne. CIMB Research is forecasting that CPO will trade at an average of RM2,450 per tonne in FY2016 and RM2,600 in 2017. This is a significant improvement from last year’s prices.

In FY2015, the average prices of CPO and palm kernel were RM2,122 and RM1,552 per tonne, a decline of 11% and 7% respectively from the year before.

Meanwhile, Malaysia’s palm oil inventory fell to a 14-month low of 1.8 million tonnes, after five straight months of decline, in April. While palm oil exports softened at the start of the year, Malaysia’s CPO exports are climbing again. In the first 10 days of this month, CPO exports improved 22% from a month earlier. Analysts note that the upcoming Hari Raya Aidilfitri should continue to support CPO exports for the next two months.

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