MP Evans: H1 2016 Results
MP Evans (LON:MPE), the Indonesian palm oil producer, has announced interim results for the period ended 30 June 2016.
• Revenue: US$30.4m, -20.2% YoY (H1 2015: US$38.0m)
• Attributable PAT: US$16.7m, +13.2% YoY, including US$4.7m contribution from associated companies and US$11.7m from discontinued operations (including profit on NAPCo disposal). (H1 2015: US$14.8m, including US$3.0m contribution from associates and US$8.8m from discontinued operations).
• Fresh fruit bunches (FFB) processed (own, majority-owned estates): 170,300t, -9.0% YoY (H1 2015: 187,100t)
• Crude palm oil (CPO) produced: 45,300t, +1.6% YoY (H1 2015: 44,600t)
• Interim dividend: Maintained at 2.25p (H1 2015: 2.25p). Special dividend of 5.0p paid on 17 August 2016.
VSA Comment
Given JV partner SIPEF (SIP BB) had already reported numbers for MPE’s JVs and peers operating in similar areas to MPE (including SIP) already reporting production decreases on their own estates, it is unsurprising to see that MPE’s FFB production continued to suffer in June (-8% YoY for the first five months, rising to -9% YoY for H1). By area, H1 production on its Sumatran estates fell by 5% YoY, Bangka fell by 23% YoY (from 19% after 5M) with Kalimantan falling by 7% (from -6% after 5M). The SIP/MPE JVs, PT Agro Muko and PT Kerasaan Indonesia, maintained the 3% YoY increase from the first five months.
It is clear that the El Niño impact has lasted longer than we had initially expected with Q2 production being more impacted than that seen at the beginning of the year, a view also echoed by fellow London-listed palm oil producer REA Holdings (RE/ LN) in its last update.
Despite the fall in FFB crop, lower smallholder co-operative crops (39,600t vs. 46,800t in H1 2015) and smaller purchases of outside crop (9,400t vs. 14,000t in H1 2015), MPE’s overall CPO production actually increased, with further extraction rate improvement at both its Kalimantan (26.0% vs. 25.6% in H1 2015) and Pangkatan (23.6% vs. 23.2% in H1 2015) mills. In addition, its new Bangka mill, commissioned in May, also produced its first CPO (3,400t).
Besides the depressed crop levels, the main story of H1 for MPE was the sale of its 34.37% stake in Australian cattle business NAPCo, delivering net proceeds to MPE of cUS$65m. MPE is currently exploring the acquisition of smaller parcels of land (4,000-5,000ha) close to its existing Kalimantan project, to expand the cluster to optimal operational size.
Looking into expectations for H2, CPO pricing has strengthened considerably (+15% since 30 June to US$755/t in Rotterdam), against our expectation. This is clearly positive for MPE (and its peers) and will help offset any continued crop shortfall due to the lasting impact of El Niño. However, we remain cautious on CPO pricing with a large, high quality US soybean crop due to start to be harvested within the next month and CPO production entering its higher production months. Although we do expect tomorrow’s Malaysian CPO stocks data to once again show reduced stock levels for August, a significant CPO price increase from this level in the next few months would be a surprise, in our opinion.
Despite difficult production conditions, MPE remains our pick of the London producers. The production downturn is sector wide and there will be a surge in production when the El Niño impact fully wears off (now likely late 2016/early 2017). MPE’s disposal of the NAPCo stake has delivered a much stronger balance sheet position (compared to the majority of its heavily indebted peers) and in an attractive position to acquire and develop additional palm oil estates near to its existing operations.
MPE LN is now +25.9% since the bottoming of the palm oil price on 26 August 2015 (AEP LN -15.5%, REA LN -7.3%, DKL LN +12.5%, PAL LN -48.3%).