Kuala Lumpur, Nov 28 - Sime Darby, the world's biggest grower of palm oil, posted a 44 percent jump in first-quarter net profit, but slashed its earnings forecast by nearly half due to falling palm oil prices and the global economic slowdown.
The state-owned company, Malaysia's biggest listed firm, said the effects of a slowing economy will impact the group's business activities, forcing it to lower targets on its key performance indicators for the full-year.
But it also saw opportunities in the turmoil, saying "once in a life time" deals to buy distressed rivals or new plantation land could be taken advantage of.
Sime Darby said it expected to post a full-year net profit of 1.9 billion ringgit ($524.7 million), almost half its previous target of 3.7 billion ringgit.
This is much lower than the 3.5 billion ringgit earned by the company in the previous year, and well below consensus forecasts of 2.62 billion ringgit for the year to June 2009, according to Reuters Estimates.
July-September net profit rose to 866.98 million ringgit, up from 601.27 million ringgit a year ago.
"The earlier KPIs announced on 29 May 2008 were set prior to the global economic crisis and when (crude palm oil) prices were trading at levels significantly higher than the prevailing level of about 1,500 ringgit per tonne," it said in a statement.
"The sharp decline in (crude palm oil) prices and the current economic uncertainty are expected to adversely affect the performance of the plantation, property and motors divisions."
FALLING PALM OIL PRICES
Sime Darby said the higher quarterly profit was mainly due to a 39 percent profit rise posted by the plantations division, on the back of higher palm oil prices from the year-ago period.
Profit from the industrial division was also up of 39 percent, but earnings from the property division fell by 30 percent.
With palm oil prices falling sharply, the outlook was gloomy.
Palm oil prices have slumped by almost two thirds since a March peak of 4,486 ringgit as oil stocks ballooned and demand waned. Prices are now near the break-even point for the less efficient plantations.
"Although we are pleased with the Q1 results, we are aware that going forward, global economic growth is expected to weaken significantly," Sime Darby Chief Executive Ahmad Zubir Murshid said in a statement.
But he asserted that the situation, and Sime Darby's strong balance sheet, provided an opportunity to look at distressed companies and newly developed plantations.
"There will be once in a life time opportunities to acquire undervalued assets particularly with our strong balance sheet," said Ahmad Zubir.
Plantations across Malaysia, the world's second-largest palm oil producer, face pressure on margins as product prices fall but fertiliser and other farm costs remain strong.
Analysts say while lower palm oil prices will squeeze earnings, contributions from the company's non-plantation businesses may also fall in the future.
Earlier this month, Singapore-listed Wilmar International , the world's largest listed palm oil firm, posted record quarterly net profit on higher sales and margins, saying its prudent hedging on raw materials helped it even as palm oil prices slumped.
Rival Golden Agri-Resources Ltd reported a 56 percent rise in quarterly net profit on higher production of crude and refined palm oil.
Sime Darby last year merged with Kumpulan Guthrie and Golden Hope Plantations to become a leading palm oil producer, with 560,000 hectares of plantations in Malaysia and Indonesia. It also has auto, heavy equipment, property and utilities businesses.
Sime Darby shares have more than halved this year, underperforming a 40 percent drop on the main index. The stock fell 29 percent in July-September, compared with a 14.2 percent drop on the benchmark index and closed unchanged at 5.85 ringgit ahead of the results on Friday.