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The Star
12-06-2025
- Business
- The Star
Earnings pressure seen
RHB Research remained cautiously optimistic on CPO prices. PETALING JAYA: Malaysia's plantation sector could face fresh earnings pressure in the second half of this financial year, as a new layer of taxation takes effect from July 1 under the expanded sales and service tax (SST) regime. According to RHB Research, the revised tax structure, which would impose a 5% levy on several upstream and downstream products, would add to the cost burdens of planters. It noted that the tax would apply to fresh fruit bunches (FFB), empty fruit bunches (EFB), palm kernel shells (PKS), palm fatty acid distillate (PFAD), palm kernel fatty acid distillate (PKFAD), and palm kernel oil (PKO). RHB Research said it expected the biggest negative impact to come from the purchase of external FFB for crude palm oil millers, as well as external PKO purchases for downstream planters. 'This tax is to be levied on top of all the other taxes the palm oil industry currently already faces – including windfall taxes, sales tax of CPO in East Malaysia, and export tax on all palm oil products,' the brokerage said, noting the negative impact of the expanded SST. 'While there can be some offsetting factor in the form of additional tax to be levied on sales of EFB, PKS and PFAD, among others, we believe the net earnings impact will still be negative,' it added. Based on RHB Research's calculations, the earnings drag could range between 0.3% and 11% annually for the companies it covers, depending on the volume of externally sourced FFB. 'We base this calculation on external FFB purchased in Malaysia multiplied by the current FFB price of RM850 per tonne and multiplied further by 5%,' it explained. The research house flagged FGV Holdings Bhd as the most exposed, noting that approximately 70% of its FFB intake comes from outside sources. RHB Research added that limited disclosures on other inputs such as PKO purchases and sales of by-products made it difficult to quantify the full extent of the impact. 'However, we are unable to calculate the impact of the purchase of external PKO and sales of other products, as these disclosures are not given,' it explained. While it continues to engage companies for greater clarity, RHB Research said it was maintaining its earnings forecasts for now. 'Earnings forecasts are unchanged for now till we obtain more clarification.' RHB Research placed the sector's rating 'under review', although it remained cautiously optimistic on CPO prices. 'We acknowledge that geopolitical risks have led to a CPO price destruction over the last couple of months,' it said. RHB Research's CPO price assumption of RM4,300 per tonne for the year is unlikely to be achieved based on the current trajectory. This is because year-to-date, the CPO price averaged at RM4,400 per tonne. However, it expected CPO prices to post a recovery towards the year end as seasonal production comes off its peak. It added that planters continue to deliver earnings-wise, while valuations remain depressed at this juncture. Its top picks remained unchanged, comprising Jaya Tiasa Holdings Bhd , Sarawak Oil Palms Bhd and Sime Darby Plantation Bhd.
Borneo Post
12-06-2025
- Business
- Borneo Post
Analysis: SST could cut plantation earnings by up to 11 pct annually
The biggest blow is expected to come from the purchase of external FFB by CPO millers and external PKO by downstream producers. — AFP photo KUCHING: The plantation sector may see its earnings drop by as much as 11 per cent per annum due to the expanded Sales and Service Tax (SST) coming into effect on 1 July, according to RHB Investment Bank Bhd (RHB Research). The house said the new 5 per cent tax will apply to several palm oil-related items including fresh fruit bunches (FFB), empty fruit bunches (EFB), palm kernel shells (PKS), palm fatty acid distillate (PFAD), palm kernel fatty acid distillate (PKFAD), and palm kernel oil (PKO), among others. 'We expect the expanded SST to be negative for the sector,' it said in a note on Thursday, adding that the estimated earnings impact could range from 0.3 to 11 per cent per annum for Malaysian plantation companies under its coverage. It noted that FGV Holdings Bhd is likely to face the most significant hit given that about 70 per cent of its FFB is sourced externally. The biggest blow is expected to come from the purchase of external FFB by crude palm oil (CPO) millers and external PKO by downstream producers. 'This tax is to be levied on top of all the other taxes the palm oil industry currently already faces – including windfall taxes, sales tax of CPO in East Malaysia, and export tax on all palm oil products. 'While there can be some offsetting factor in the form of additional tax to be levied on sales of EFB, PKS, PFAD, etc, we believe the nett earnings impact will still be negative,' it added. RHB Research calculated the estimated earnings impact using a base price of RM850 per tonne for FFB and based it on the volume of external FFB purchases, though full figures for external PKO purchases and other sales were not available due to limited disclosures. Despite the negative outlook from the new tax, RHB Research has kept its earnings forecasts unchanged for now, pending further clarification from the companies under its coverage. The research house has also placed its sector rating under review, down from a previous overweight stance. 'Geopolitical risks have led to a CPO price destruction over the last couple of months and our price assumption of RM4,300 per tonne for the year is unlikely to be achieved,' it said. The year-to-date CPO price is around RM4,400 per tonne, and analysts expects a potential recovery towards the end of the year as production slows. Its top stock picks remain unchanged and include Johor Plantations Group, Sarawak Oil Palms, SD Guthrie, Bumitama Agri Ltd, and PP London Sumatra Indonesia Tbk. analysis economy expanded SST palm oil plantation SST
The Star
12-06-2025
- Business
- The Star
Planters brace for profit hit under expanded SST regime
PETALING JAYA: Malaysia's plantation sector could face fresh earnings pressure in the second half of the year, as a new layer of taxation takes effect from July 1 under the expanded sales and service tax (SST) regime. According to RHB Research, the revised tax structure, which would impose a 5% levy on several upstream and downstream products, would add to the cost burdens of planters. It noted that the tax would apply to fresh fruit bunches (FFB), empty fruit bunches (EFB), palm kernel shells (PKS), palm fatty acid distillate (PFAD), palm kernel fatty acid distillate (PKFAD), and palm kernel oil (PKO). RHB Research said it expected the biggest negative impact to come from the purchase of external FFB for CPO millers, as well as external PKO purchases for downstream planters. 'This tax is to be levied on top of all the other taxes the palm oil industry currently already faces – including windfall taxes, sales tax of crude palm oil (CPO) in East Malaysia, and export tax on all palm oil products,' the brokerage said, noting the negative impact of the expanded SST. 'While there can be some offsetting factor in the form of additional tax to be levied on sales of EFB, PKS and PFAD, among others, we believe the net earnings impact will still be negative,' it added. Based on RHB Research's calculations, the earnings drag could range between 0.3% and 11% annually for the companies it covers, depending on the volume of externally sourced FFB. 'We base this calculation on external FFB purchased in Malaysia multiplied by the current FFB price of RM850 per tonne and multiplied further by 5%,' it explained. The research house flagged FGV Holdings Bhd as the most exposed, noting that approximately 70% of its FFB intake comes from outside sources. RHB Research added that limited disclosures on other inputs such as PKO purchases and sales of by-products made it difficult to quantify the full extent of the impact. 'However, we are unable to calculate the impact of the purchase of external PKO and sales of other products, as these disclosures are not given,' it explained. While it continues to engage companies for greater clarity, RHB Research said it was maintaining its earnings forecasts for now. 'Earnings forecasts are unchanged for now till we obtain more clarification.' RHB Research placed the sector's rating 'under review', although it remained cautiously optimistic on CPO prices. 'We acknowledge that geopolitical risks have led to a CPO price destruction over the last couple of months,' it said. RHB Research's CPO price assumption of RM4,300 per tonne for the year is unlikely to be achieved based on the current trajectory, as year-to-date, the CPO price averaged at RM4,400 per tonne. However, it expected CPO prices to post a recovery towards the year end as seasonal production comes off its peak. It added that planters continue to deliver earnings-wise, while valuations remain depressed at this juncture. Its top picks remained unchanged, comprising Jaya Tiasa Holdings Bhd , Sarawak Oil Palms Bhd and Sime Darby Plantation Bhd.
New Straits Times
12-06-2025
- Business
- New Straits Times
FGV may see earnings fall over 50pct annually from expanded SST
KUALA LUMPUR: FGV Holdings Bhd is set to take the biggest hit from the upcoming expansion of the Sales and Service Tax (SST), with RHB Investment Bank Bhd estimating the group's annual earnings could plunge by more than 50 per cent. The firm said the impact on FGV is significant, as about 70 per cent of its processed fresh fruit bunches (FFB) are sourced externally. This could result in a tax burden of over RM430 million annually once the five per cent SST takes effect on July 1. In a research note, RHB Investment said the expanded tax, covering both upstream and downstream palm products such as FFB, palm kernel oil, palm fatty acid distillate and other by-products, would squeeze margins across the industry. RHB Investment regional head of plantations research Hoe Lee Leng said the SST expansion comes on top of an already heavy fiscal load for the palm oil sector, which also faces windfall levies, East Malaysia sales tax and export duties. "The net impact will likely remain negative despite some offset from taxes levied on downstream sales," she said, adding that the firm has downgraded its sector view to "Under Review" from "Overweight". The new SST will be imposed across a wide range of palm-based products and by-products, dealing a fresh blow to companies already navigating a challenging operating environment. RHB Investment said companies such as Ta Ann Holdings Bhd, Johor Plantations Group Bhd and Sarawak Oil Palms Bhd could also see profits decline by between four and 11 per cent due to the tax on external FFB purchases. By comparison, SD Guthrie Bhd, IOI Corp Bhd and Kuala Lumpur Kepong Bhd are expected to experience milder effects, with projected earnings impact ranging from just 0.3 to one per cent. Despite the near-term drag, the firm is keeping its earnings forecasts unchanged for now, pending further clarification from companies on how the tax will affect their bottom line. RHB Investment's top stock picks in the sector are Johor Plantations Group Bhd, Sarawak Oil Palms Bhd, SD Guthrie, Bumitama Agri Ltd and PP London Sumatra Indonesia Tbk, citing attractive valuations and relative resilience. On crude palm oil, the firm said prices may struggle to meet its full-year forecast of RM4,300 per tonne, even with the year-to-date average hovering around RM4,400. A recovery is expected toward the end of the year as production eases seasonally. Still, the sector outlook remains weighed down by a range of uncertainties from trade tensions and biodiesel mandate shifts to unpredictable weather and policy risks in Indonesia. Environmental scrutiny continues to loom over the industry as well. Labour, previously a thorny issue, is no longer a major concern, with most companies now reporting full staffing or only minor gaps. "Until we have better visibility, we are placing our sector rating under review," RHB Investment said, noting that while valuations are undemanding, fiscal pressure and regulatory headwinds are expected to keep sentiment cautious in the near term.
Focus Malaysia
11-06-2025
- Business
- Focus Malaysia
Crude palm oil prices stabilise as supply concerns ease, stocks rise
THE local CPO price delivery ended the month at RM3,855/Mt with an average price of RM3,881/Mt on higher ending stocks as concerns over limited supply risks dissipated. 'Moving ahead, we anticipate that the crude palim oil (CPO) prices will remain stablised, hovering within the range of RM3,900–4,200/Mt,' said MIDF Research (MIDF) in the recent Monthly Sector Report. This is typically in line with seasonal production trends, as the pollination period ends in March and PO output is expected to recover, potentially leading to an increase in closing stock levels. CPO output in May-25 grew to 1.77 mil tonne or +3.9% year-on-year (yoy) versus prior year, supported by robust growth from the eastern estates, particularly in Sarawak (+6.4% yoy) and Sabah (+13.0% yoy). The fresh fruit bunch (FFB) received by mills inches to 9.05 mil tonne (+1.3% yoy) well supported by a decent average yield of 1.48 tonne /ha, inline with the onset of the seasonally fruitful months. Additionally, the average oil extraction rate (OER) in the mills improved to 19.89%, driven by betterset of crops across most estates. Favourable weather conditions have allowed quicker FFB evacuation activity, bringing the fruitlets with higher oil content. Looking ahead, with the end of the inter-monsoon and pollination periods, drier weather and a faster recovery in FFB evacuation activities expected from May onwards, this allows estate productivity to gain momentum, particularly in terms of harvesting and manuring activities. Note that, local CPO production is projected to reach 19.5 mil Mt in 2025 (+1.0% yoy), with the bulk of the recovery anticipated to materialise in the second half of 2025 (2H25), driven by improved set of crops and estate efficiencies. 'We opine sector's top-line to continue uptick in 1HCY25 in-line with higher average CPO price assumptions,' said MIDF. However, margins are likely to remain under pressure due to the persistent elevated cost of production, caused by higher locked in fertiliser costs of 2HCY24, coupled with elevated external FFB purchase expenses amid low mills utilisation rates. 'We are maintaining neutral call at this juncture, while CPO prices are expected to remain under pressure, production is likely to perform, leading to a ceteris paribus performance for CY25,' said MIDF. Therefore, MIDF foresees only a handful of players likely to benefit from elevated CPO prices. Hence, they recommend avoiding smaller players with significant exposure to external FFB purchases, as the aforementioned factors could risk their CPO production, particularly during the current biological tree rest environment. —June 11, 2025 Main image: Musim MAS
