GOLDEN Agri-Resources : E5H 0% posted a 55.4 per cent drop in profit to US$90 million in the second quarter ended June, from US$202 million in the same period last year. This comes amid weakening crude palm oil (CPO) prices and slowing production.

Revenue dropped 16.2 per cent for the quarter – to US$2.3 billion from US$2.8 billion – the mainboard-listed palm oil company said on Monday (Aug 14).

The weak CPO prices continued in the first half-year, as the market price for FOB Belawan CPO fell 40 per cent on the year, the group noted.

Net profit for the half year fell 53.3 per cent to US$182 million from US$390 million, which was moderated by CPO price normalisation and production slowdown, while downstream performance cushioned the downside impact.

Revenue for H1 dropped 11.2 per cent to US$4.9 billion from US$5.5 billion.

Earnings per share stood at US$0.0144 for the half year, down from US$0.0307 the previous year.

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The group did not declare any ordinary dividend for the financial period, as opposed to an interim dividend of S$0.008 declared the previous year. 

Golden Agri said that the increased sales volume in its downstream business helped to mitigate the worst impacts of the market uncertainty, as the plantation business was directly hit by the drop in CPO prices.

Given the higher sales volume partly compensated by lower average selling prices, its downstream segment of palm, laurics and others registered a moderate drop in revenue to US$4.8 billion, 11.6 per cent down from US$5.5 billion year on year.

The group highlighted that the increase in sales volume also signalled a recovery in the downstream sector after the lifting of Indonesia’s temporary export ban in June 2022.

As a result, the downstream segment’s earnings before interest, taxes, depreciation and amortisation (Ebitda) of US$258 million, though 10 per cent lower on the year, maintained a stable margin of 5.3 per cent, contributing over half of the group’s consolidated Ebitda for H1.

The group’s upstream segment, comprising plantations and palm oil mills, recorded a 5.3 per cent drop in fruit yield and an 8.3 per cent drop in palm product output for the half year.

High rainfall mainly in Kalimantan early this year and the preparation of old estates for replanting were the primary causes of the declines, said the group.

Ebitda for the upstream business stood at US$219 million in H1, down by 58 per cent, driven by weaker CPO market prices, lower plantation output, and higher cost for fertilisers that were bought at a higher price last year, according to the group.

On Monday, Golden Agri’s director for investor relations Richard Fung said the company’s “vertically integrated business model” has helped buffer the group from lower CPO prices.

He said the group has a targeted capital expenditure of US$240 million for this year mainly for replanting, expansion of kernel crushing and oleochemical plants, enhancement of downstream facilities as well as carbon emission initiatives.

Looking ahead, Fung said he expects the palm oil industry’s demand and supply balance to remain tight.

“The structural reasons for this are the lack of new plantings and land expansion across the industry, resulting in ageing plantations,” he said.

He said CPO prices have room to head higher in the near term, on the back of the looming El Nino weather phenomenon. He noted that CPO prices can sometimes rise in the lead-up to the El Nino phenomenon as the market braces for a reduction in supply.

Most of the impact of El Nino, Fung said, is expected to be booked by Golden Agri in 2024. He also said the company expects to book a “more positive” H2 compared to H1.

Shares of Golden Agri were trading flat at S$0.25 as at 9.44 am.