KRETAM HOLDINGS BERHAD’s Q1 2025 Performance: A Deep Dive into Growth Amidst Volatility

Greetings, fellow investors and market enthusiasts! Today, we’re unpeeling the layers of KRETAM HOLDINGS BERHAD’s latest interim financial report for the quarter ended 31 March 2025. This report offers a crucial glimpse into the company’s operational health and strategic direction, especially for Malaysian retail investors keen on the palm oil sector.

At first glance, KRETAM has delivered a robust performance in terms of profitability, significantly boosting its bottom line despite a slight dip in overall revenue. The standout highlight? A remarkable surge in pre-tax and net profits, coupled with a promising dividend announcement. Let’s dive into the details to understand what’s driving these numbers and what lies ahead for this integrated palm oil player.

Q1 2025: Key Financial Highlights

KRETAM Holdings Berhad has demonstrated impressive profit growth in the first quarter of 2025 when compared to the same period last year. While revenue saw a minor contraction, the company’s ability to significantly improve its profitability is a strong indicator of operational efficiency and better margins.

The significant improvement in profitability, despite slightly lower revenue, suggests effective cost management and potentially better selling prices or margins for key products. This is a positive sign for the company’s underlying operational health.

Diving Deeper: Segmental Performance

Plantations and Mills

The Plantation and Mill segment, a cornerstone of KRETAM’s operations, reported a revenue (including inter-segment) of RM101.0 million in Q1 2025, a slight decrease from RM106.2 million in Q1 2024. This dip in revenue was primarily due to a 10.5% decline in Fresh Fruit Bunch (FFB) production volume, which fell from 75,917 metric tonnes in Q1 2024 to 67,933 metric tonnes in Q1 2025. FFB yield also saw a 5.5% decline.

However, the segment’s pre-tax gain jumped significantly by 66%, from RM14.1 million to RM23.4 million. This impressive increase was largely attributed to two key factors:

1. Higher Average Selling Prices: Despite lower volumes, the average selling prices for Crude Palm Oil (CPO) and Palm Kernel (PK) were notably higher in Q1 2025 compared to Q1 2024. For instance, the average CPO price in Sabah rose from approximately RM3,963.50 per metric tonne in Q1 2024 to about RM4,638.17 per metric tonne in Q1 2025.
2. Lower Estate Upkeep Costs: The company benefited from reduced spending on manuring, weeding, and road maintenance, primarily due to heavy rainfall during the quarter, which naturally lowered these operational expenses.

The overall Oil Extraction Rate (OER) for the Group’s palm oil mills was 19.48%, slightly lower than 20.02% in the previous year, but still comparable to the MPOB Sabah average.

Refinery Operations

The Refinery segment also showed a mixed bag. Its revenue declined from RM160.2 million in Q1 2024 to RM146.6 million in Q1 2025. This was mainly due to a decline in CPO sales volume. However, similar to the plantation segment, profitability improved significantly.

The refinery division’s pre-tax gain more than doubled, soaring by 131% from RM4.2 million to RM9.7 million. This substantial gain was driven by:

1. Better Margins on PME Sales: The company achieved better margins on Palm Methyl Ester (PME) sales.
2. Lower Cost of Sales: Overall lower cost of sales contributed to the enhanced profitability.
3. Higher Average Selling Price and Sales Volume for PME: Increased sales volume and higher average selling prices for PME partially offset the decline in CPO sales volume.

Financial Health Check

KRETAM’s balance sheet reflects a healthy financial position, with improvements in net current assets and a reduction in overall borrowings.

The company’s net current assets saw a healthy increase of 8.2%, reflecting improved liquidity. Total borrowings decreased significantly by 34.6%, indicating effective debt management. Cash and bank balances remained relatively stable. Net assets per share also showed a modest increase, which is positive for shareholder value.

During the quarter, KRETAM also repurchased 3,720,200 ordinary shares from the open market for a total consideration of RM2.04 million, which are now held as treasury shares. This move can be seen as a vote of confidence from the company’s management in its own valuation.

Comparison with Previous Quarter (Q4 2024)

When comparing Q1 2025 to the immediate preceding quarter (Q4 2024), KRETAM’s profit before taxation was lower, declining by 61% from RM91.1 million to RM35.9 million. This sequential decline was primarily due to:

• Higher sales volume and average selling prices for CPO and PK in the previous quarter (Q4 2024).
• A significantly lower fair value gain on investment securities in Q1 2025 (RM2.6 million) compared to Q4 2024 (RM23.8 million).
• Absence of dividend income in Q1 2025, whereas RM3.9 million was received in Q4 2024.

This quarter-on-quarter comparison highlights the inherent volatility in commodity prices and investment gains that can impact a company’s financial results.

Risks and Prospects: Navigating the Palm Oil Landscape

The palm oil industry is dynamic, and KRETAM acknowledges the challenges and opportunities ahead. The company’s outlook for 2025 remains optimistic, despite anticipated market volatility.

Market Dynamics and Price Volatility

CPO prices experienced fluctuations in Q1 2025, influenced by changes in Malaysian palm oil inventories and reduced production in both Malaysia and Indonesia due to the monsoon season. Looking beyond March 2025, CPO prices are expected to remain volatile throughout the year. This volatility is driven by:

• Anticipated improvements in production in upcoming quarters, which could increase supply.
• Potential policy shifts by the Indonesian government regarding biodiesel mandates, which can significantly impact demand.
• Broader global factors, including unpredictable international trade policies and ongoing geopolitical tensions, which create uncertainty in equity and commodity markets.

Company Strategies and Resilience

Despite these external challenges, KRETAM remains confident in its 2025 outlook. This confidence is rooted in current palm oil prices and the management’s proactive initiatives. The company is focused on:

• Prudent Cost Control: Emphasizing disciplined management of operational expenses to maintain profitability.
• Yield and Productivity Enhancement: Adopting advanced technologies and innovative practices to improve FFB yields and oil extraction rates.
• Mitigating Industry Risks: Implementing strategic measures to navigate the inherent risks of the palm oil sector.

Capital Commitments and Joint Ventures

As at 31 March 2025, KRETAM has approved capital commitments totaling RM85.19 million, indicating ongoing investment in its operations. Furthermore, the company continues to progress with its Bulking Joint Venture Agreement (BJVA), although some conditions precedent, such as land sale and pipe rack sublease agreements, are still pending finalization. This joint venture, once fully operational, aims to enhance the company’s logistics and storage capabilities for palm oil products.

Post-Period End Development

It’s important to note a subsequent event: the fair value of KRETAM’s investment in quoted securities declined to RM190.8 million as of 26 May 2025, down from RM214.65 million at 31 March 2025. This highlights the market risks associated with investment portfolios and could impact future financial results.

What are your thoughts on KRETAM’s Q1 2025 performance? Do you think the company can maintain this growth momentum in the face of market uncertainties? Share your views and insights in the comments section below!