Higher palm oil prices offset lower production output for Golden Agri

HIGHER crude palm oil (CPO) prices in the second half of 2020 contributed to an improvement in Golden Agri-Resources' revenue and profits for its H2 FY2020 ended December. Golden Agri said prices are likely to be sustained throughout this year, which could in turn translate to higher revenue.

In a call to discuss the company's earnings on Friday, Golden Agri's director of investor relations Richard Fung said the company's downstream and upstream segments were beneficiaries of higher CPO prices.

The international CPO (FOB Belawan) price averaged at US$691 per tonne last year, some 32 per cent higher than the previous year.

Higher CPO prices "more than offset" weaker palm oil product output caused by drier weather conditions. Golden Agri's output had declined 5 per cent in 2020.

Golden Agri's downstream segment, meanwhile, was lifted by a "strong recovery" at end-2020 as economies began to open up after Covid-19 lockdowns.

Mr Fung said CPO prices are "not artificially or unnaturally high", and could be sustained throughout the year thanks to a "tight demand and supply situation".

"We're in a fairly unusual situation with tightness across the whole vegetable oil complex," said Mr Fung.

"Inventory levels are at multiyear lows for vegetable oils, and many people believe it will take up to (a) year for CPO prices to normalise."

Apart from CPO, other vegetable oil variants include soybean oil, sunflower seed oil and rapeseed oil. Production of these oils also fell in 2020 because of dry weather conditions.

Mr Fung added that wetter conditions this year, which have traditionally been more favourable for palm trees, should prompt a recovery in output levels. He estimates that Golden Agri's production will grow about 5 per cent this year, in line with the projected growth of Indonesia's overall output levels.

Mr Fung added that the gradual recovery from the Covid-19 pandemic across countries means a healthy growth in demand for palm oil products as economies begin reopening.

On Thursday, Golden Agri posted a net profit of US$188.6 million (S$248.4 million) for H2 FY2020, down 21.5 per cent from US$240.4 million in the corresponding year-ago period.

Golden Agri had posted a net loss of US$156.9 million in H1 FY2020.

Revenue for H2 rose 12.9 per cent to US$3.69 billion from US$3.27 billion in the corresponding period last year.

Golden Agri's board of directors has proposed a final dividend of 0.48 Singapore cent per ordinary share for FY 2020, compared to a final dividend of 0.58 cent in FY 2019. Mr Fung said this is a "prudent measure" on the part of the company given that the pandemic is still ongoing.

Looking ahead, the company will continue to lift its productivity levels to take advantage of heightened CPO prices through accelerated replanting, improving the age profile of trees and improving its infrastructure.

As at 1.34pm, shares in Golden Agri were trading at 19.2 Singapore cents, down 0.5 per cent or 0.1 cent.