Indonesia CPO tax hike to cut local players’ profits. Analysts expect earnings reduction of 1% to 6% this year

Malaysian plantation companies with high exposure to oil palm estates in Indonesia are expected to see their earnings cut by 1% to 6% this year after the republic raised export taxes on crude palm oil (CPO) and related products.
Last Friday, Indonesia increased its export tax on CPO to 6.5% from 1.5% before. It also raised tariffs on crude olein to 6.5% from 0.3%.

Analysts contacted by StarBiz said they were not surprised by Indonesia's decision as the market had been speculating the move the past few months.

They said the quantum of the hike in Indonesia's CPO export tax was similar to Malaysia's new cooking oil stabilisation cess imposed on domestic producers, equivalent to about 4% of the CPO selling price.

Analysts concurred that both upstream and downstream players in Indonesia would bear the full brunt of the higher tax.

At the current base CPO price of US$525 a tonne, analysts estimate the higher export tax would translate into additional costs of US$26.50 a tonne.

Malaysia-listed plantation firms with a strong presence in Indonesia include Kuala Lumpur Kepong Bhd (KLK), Kumpulan Guthrie Bhd, Golden Hope Plantations Bhd, Asiatic Development Bhd, PPB Oil Palms Bhd and IJM Plantations Bhd.


Guthrie CPO storage tanks in Sekunyit, Central Kalimantan
CIMB Research said in its latest note: “Among those (Indonesian and Malaysian planters) affected, KLK is however less sensitive to the tax as we estimate that its Indonesian operations account for only 30% of its total CPO production.”

Analysts, however, were reluctant to comment on the impact of the higher CPO export tax on Guthrie and Golden Hope pending the full merger under the Synergy Drive group and also on PPB Oil Palms, given its merger with Singapore-based Wilmar International Ltd.

On the plus side, an analyst said international CPO prices may rise further owing to concerns over lower palm oil exports from Indonesia this year.

“If that happens, Malaysian CPO producers will be clear beneficiaries as major consumers will turn to Malaysia where there is no such export tax,” he said.

Meanwhile, CPO futures on Bursa Derivatives ended generally higher yesterday with benchmark third month September contract rising RM54 to RM2,457 a tonne at the close.

The spot June south improved to RM2,640 versus RM2,580 on Friday.

Source: biz.thestar.com