Batu Kawan posts better plantation earnings but sizeable forex losses

KUALA LUMPUR (May 27): Batu Kawan Bhd's quarterly net profit dropped sharply by nearly 80% to RM16.02 million for the second quarter ended March 31 (2QFY20) from RM79.28 million a year ago, mainly due to a sizeable RM201.3 million of unrealised foreign currency exchange translation losses on bank and inter-company loans.

However, its plantation segment registered strong earnings growth, lifted by stronger crude palm oil prices (CPO).

In a stock exchange filing today, the plantation conglomerate said the forex loss is largely due to the significant depreciation of Indonesian rupiah against the US dollar and ringgit during the period.

In the January-March period, the rupiah depreciated by as much as 20%, especially during the global stock market rout experienced in late February.

Nonetheless, Batu Kawan has declared an interim dividend of 15 sen per share tallying its dividend amount paid in the corresponding period last year. The dividend is to be paid on Aug 6, while the entitlement date is fixed on July 15.

For the quarter ended March 31, 2020 (2QFY20), Batu Kawan posted 3.43% lower in revenue to RM3.93 billion from RM4.07 billion previously.

The group’s plantation segment generated higher profit before tax (PBT) of RM154.69 million, up 48.6% against RM104.08 million a year ago, thanks to stronger CPO and palm kernel prices coupled with RM11.21 million unrealised gain arising from changes in fair value on outstanding derivative contracts.

However, the improvement was offset by higher CPO production costs due to a decline in FFB production by 9.4% to 923,163 metric tons and RM32.77 million unrealised loss arising from translation of an Indonesian subsidiary's US dollar denominated loans.

Meanwhile, its manufacturing segment reported a marginally lower profit by 3.4% of RM116.49 million from RM120.60 million previously.

Specifically, the oleochemical division registered a higher current quarter’s profit of RM96.32 million despite higher unrealised loss arising from fair value changes on outstanding derivatives contracts which amounted to RM16.48 million.

“Malaysia and China operations had shown stronger performance while Europe operations reported lower profits with reduction in sales volume,” it said.

Meanwhile, its Industrial Chemical division posted a 29.5% lower profit at RM20.30 million impacted by lower selling prices and higher energy cost.

For the six-month period ended (6MFY20), Batu Kawan posted a 44.69% decline in net profit to RM119.45 million from RM215.97 million a year ago, due to the foreign exchange impact.

Revenue for the period fell nearly 2% to RM8.13 billion from RM8.29 billion in the previous year’s corresponding period.

Going forward, Batu Kawan expects its plantation segment to be satisfactory for the financial year 2020 in view of better operating performance.

However, it notes that the operating environment for its manufacturing segment will remain challenging due to economic uncertainties resulting from the pandemic.

“Both the group's oleochemical and industrial chemical divisions look towards the recovery of demand once the pandemic subsides.

“Overall, the group expects a satisfactory profit for the financial year 2020, subject to uncertainties arising from the COVID-19 pandemic,” it said.

Batu Kawan’s shares gained 14 sen to RM14.10 today, giving it a total market capitalisation of RM5.63 billion.