This article first appeared in The Edge Financial Daily on August 21, 2019 - August 27, 2019

KUALA LUMPUR: Kuala Lumpur Kepong Bhd (KLK) and its parent Batu Kawan Bhd have warned of reduced profit for the financial year ending Sept 30, 2019 (FY19), as they report significantly reduced earnings  in the third quarter (3QFY19).

KLK’s net profit for the quarter slumped 65% to RM48.62 million from RM139.87 million a year ago, as revenue fell 14.5% to RM3.7 billion from RM4.33 billion.

In a filing with Bursa Malaysia yesterday, KLK said the weaker 3QFY19 results came after its plantation division suffered a substantial 67.9% year-on-year drop in profit to RM39.8 million from RM124 million due to lower palm products prices realised, despite recording a marginal improvement in fresh fruit bunch production.

It also incurred a corporate loss of RM123.1 million versus RM20 million in the same quarter a year ago, as it included a provision of RM145.3 million for impairment of an estate located in Sinoe County, Liberia.

“From recent high carbon stock and high conservation value assessments, it was determined that there is limited plantable area in this estate, thus making it no longer feasible to continue operations. Hence, the group has ceased operations in this estate,” it said.

According to KLK’s 2018 annual report, the group, which expanded its plantation operations to Liberia, owns two estates, namely Palm Bay Estate and Butaw Estate, contributing 3% to the group’s total oil palm planted area of 213,834 ha.

KLK’s weaker 3QFY19 performance resulted in its net profit in the first nine months of FY19 (9MFY19) sliding 8.1% to RM442.49 million from RM481.38 million in the same period a year ago, as revenue fell 17.3% to RM11.73 billion from RM14.19 billion. “Overall, the group anticipates a reduced profit for financial year 2019,” said KLK.

While it sees satisfactory profit for the oleochemical division due to better margins from lower raw material prices, it said prevailing crude palm oil (CPO) and palm kernel  (PK) prices remained significantly lower than a year ago. “In view of this, plantation profit for the current financial year will be lower,” it said.

Similarly, Batu Kawan’s 3QFY19 net profit was slashed by more than half to RM50.83 million from RM106.67 million a year ago, as revenue fell 14.5% to RM3.82 billion from RM4.47 billion. Its plantation business saw a 78.6% fall in profit to RM40.43 million due to weaker CPO and PK prices.

For 9MFY19, Batu Kawan’s net profit fell 7.5% to RM266.8 million from RM288.43 million a year ago, while revenue declined 17.13% to RM12.12 billion from RM14.63 billion.  It expects its plantation profit for the year to be lower than FY18 in view of prevailing low CPO and PK prices, which it said will lower its FY19  earnings.