BURSA Malaysia-listed plantation stocks will likely post a mixed bag of results in their upcoming 2Q 2022 results with crude palm oil (CPO) price having plummeted by half to the current sub-RM4,000/metric tonne (MT) level in recent times.
Hong Leong Investment Bank (HLIB) Research expects upstream planters with significant exposure in Malaysia to likely post flat to higher sequential performance in 2Q 2022 on the back of broadly higher fresh fruit bunches (FFB) output and palm product prices.
“However, planters with significant exposure to Indonesian estates will likely post weaker performance in 2Q 2022 as we believe Jakarta’s export policies would weigh down on sales volume in Indonesia,” projected analyst Chye Wen Fei in a plantation sector update
Plantation counters will start reporting their quarterly financial results starting from Aug 17.
On a year-on-year (yoy) basis, HLIB Research expects planters to post higher upstream earnings in their upcoming results on the back of significantly higher CPO price (exceeding 50%) which more than mitigated (i) higher production cost (arising mainly from higher fertiliser prices); and (ii) lower FFB output.
Reiterating its “overweight” outlook on the plantation sector, HLIB Research expects prospects to be supported by (i) an anticipated recovery in CPO price; and (ii) commendable valuations.
“For exposure, we prefer integrated players such as Kuala Lumpur Kepong Bhd (“buy”; target price: RM26.54) and IOI Corp Bhd (“buy”; TP: RM4.36) over purer upstream players as earnings of integrated players tend to be better insulated amid volatile palm product price trend,” justified the research house.
Moving forward, HLIB Research observed that CPO price has recovered from its low of RM3,677/MT in mid-Jul-y to RM4,127/MT, hence bringing its year-to-date (YTD) average to RM5,966/MT.
“While Indonesia’s move to flush out palm oil inventories will likely suppress near term CPO price, the recent severe CPO price decline is overdone,” opined the research house.
“This is given (i) supply prospects of major vegetable oil remains uncertain; and (ii) demand prospects have turned more favourable on the back of palm oil’s improved price competitiveness, low inventory levels among major importing countries, and favourable POGO spread.”
All-in-all, HLIB Research maintained its 2022-2024 CPO price assumptions of RM5,500/RM4,500/RM3,800 per MT. – Aug 3, 2022
