In a filing with Bursa Malaysia today, the oil palm plantation group attributed the lower earnings to the lower average realised crude palm oil (CPO) and palm kernel (PK) prices.
In Q2 FY2023, revenue fell 23% y-o-y to RM4.31 billion, down from RM5.59 billion the previous year.
This decline in its quarterly profit also led to a reduction in earnings per share (EPS) from 11.7 sen to 5.5 sen.
For the cumulative six-month period ending June 30, net profit slumped 71% to RM449 million from RM1.53 billion the previous year while revenue fell 16% to RM8.37 billion from RM9.97 billion a year ago.
SDP announced a dividend of 3.25 sen for the quarter, lower compared to 10 sen the previous year.
In a separate statement, SDP said the average realised prices for CPO in Q2 FY2023 stood at RM3,765 per metric tonne (MT), reflecting a 28% year-on-year (y-o-y) drop from RM5,213 per MT in the same period last year.
Impacted by reduced demand in the oleochemicals sector, it reported a 47% y-o-y drop in average realised PK prices to RM1,767 per MT in Q2 FY2023 compared with RM3,339 per MT a year ago.
Declining productions and market margin
SDP’s upstream division was impacted by a slight decrease in production of fresh fruit bunches (FFB) and reduced oil extraction rates.
These challenges were intensified by increased operational costs, primarily stemming from elevated expenses related to fertilisers and labour, the group said.
The decrease in FFB production was attributed to the group’s fast-tracked replanting initiative in Indonesia aimed at rejuvenating low-yield and mature palm sections using more productive planting materials.
Additionally, the group’s downstream division registered a 55% drop in revenue, impacted by reduced profitability in the Asia Pacific refining sector due to decreased margins and demand, as well as a decreased share of gains from a collaborative venture.
It explained finance expenses rose to RM49 million, driven by elevated interest rates influenced by the upswing in benchmark lending rates, which was partially offset by decreased borrowings, according to its financial report.
“Average interest rate was 5.1% per annum, as compared to 2.4% per annum in the corresponding quarter,” it added.
Weather, geopolitics and transformation
Looking ahead, the group anticipates ongoing price fluctuations in the short term due to geopolitical tensions and global macroeconomic factors, further contributing to existing uncertainties.
“The rebound in CPO and other commodity prices was mainly driven by the increasingly uncertain weather conditions in key oilseed regions, as well as the escalation of the Russia-Ukraine war,” it said.
On FFB production, SDP is projecting a consistent rise as the company moves into the upcoming months’ peak production phase.
“The group is optimistic that its FFB production will improve, as it continues to improve field conditions in its Malaysian operations,” it said.
Group managing director Helmy Othman Basha said the arrival and upskilling of new harvesters will put the harvesting operations and field conditions back on track to deliver better productivity for the rest of the year.
“As we approach the peak production period in the coming months, the group is looking forward to continued improvement of our performance in the second half of 2023,” he said in a virtual briefing on its Q2 results today.
On CPO prices during Q3 and the impact of El Niño, the group believes pricing will remain stable with the potential to reach RM4,000.
“These efforts complement the group’s commitment to continue its transformational initiatives to mechanise, automate and digitalise its operations in Malaysia,” it stated.
SDP’s shares ended seven sen or 1.59% lower at RM4.32, giving the group a market capitalisation of RM29.8 billion.