THE prospect of Malaysia’s plantation sector next year is projected to be bleaker, no thanks to the “Cukai makmur” a.k.a prosperity tax which will likely dent planters’ bottom line.
CGS-CIMB Research expects the sector to encounter a dual blow from the one-off windfall tax of 33% which will be imposed on (i) taxable profit of Malaysian companies in excess of RM100 mil in 2022, and (ii) higher windfall profit levy for East Malaysian palm oil producers when crude palm oil (CPO) prices rises above RM4,000/tonne.
“This is partly offset by recent approval of by the Malaysian Government to facilitate the entry of 32,000 foreign workers,” opined head of research Ivy Ng Lee Fang in an agribusiness review.
Reiterating its “neutral” outlook on the sector, CGS-CIMB Research nevertheless projects CPO prices to remain firm at RM4,000-5,000/tonne in November 2021F. For October, CPO prices have risen 11% month-on-month and 69% year-on-year to a record high of RM5,051/tonne as global supply of edible oils fall short of expectations.
Meanwhile, RHB Research which is retaining its “underweight” outlook on the plantation sector believes fundamentals still point to moderating CPO prices in 2022, thus advocating a profit-taking strategy.
“However, we highlight a risk of La Niña in 4Q 2021/1Q 2022 which could keep prices higher for longer,” analyst Hoe Lee Len. “While we believe ESG (environmental, social and governance) discounts will still prevail – thereby dampening valuations – we see some value in stocks that are still trading at low implied CPO prices.”
While the research house is seeing the share price of plantation companies finally moving along with CPO prices for the first time this year, the movement continues to lag that of CPO prices in terms of quantum.
While CPO prices have jumped 18% in the space of six weeks, only a few plantation stocks under RHB Research’s radar have seen price movements above 10% during the same period (notably, Ta Ann Holdings Bhd, FGV Holdings Bhd and Sime Darby Plantation Bhd).
“While the regional names are performing, most of the Malaysian planters are still underperforming vs CPO prices, likely due to the ESG discounts which we believe still prevail,” added the research house. – Nov 5, 2021
