IT is a rarity that a research analyst would bite the bullet to admit his/her guilt of misjudgment.
Many off-target or mis-hit evaluation which may have caused losses to serious investors who took up “buy” calls only for a particular stock to see its price plummeting are often ended up being swept under the carpet.
So it was indeed heartening to read RHB Research’s analyst Hoe Lee Leng admitting how the research house has erred in its outlook of the plantation sector which is today thriving with spiralling crude palm oil (CPO) prices that have exceeded RM6,500/metric tonne (MT).
“We admit our call for this year of 2022 has been wrong so far given this unforeseen black swan event,” she pointed out in a regional plantation sector update. “With the geopolitical risk of war becoming a reality, thereby causing all commodity prices to spike up further, our base case assumption of ‘no war’ is down the drain.
“Crude oil prices have shot past US$100.00/barrel while CPO futures prices have shot past MYR6,500/MT. As we have no idea of knowing the extent of this intrusion and how long it will last, we are not revising up our CPO price assumptions as yet.
“However, we are upgrading our sector weighting to “neutral” (from “underweight” previously) given the knock-on effect on commodity prices and, therefore, earnings and valuations of the planters.”
In the quest to beef up the research house’s assessment of the plantation sector – without raising the CPO price assumption – Hoe said RHB Research has included a sensitivity analysis with target prices of companies based on CPO price assumptions ranging from RM4,000-RM6,000/MT.
“This would enable investors to have an idea where share prices could potentially move to depending on the average price for the year,” she rationalised.
“We highlight that this sensitivity analysis is based on the valuation targets we ascribe to the planters under our coverage which is 18 times 2022F P/E (price-to-earnings ratio) for the big-cap Malaysian planters and 8-10 times P/E for the regional and mid-cap Malaysian planters.”
Additionally, the research house has also imputed in the various tax and levies in its sensitivity calculations, according to Hoe.
Hoe further noted that RHB Research’s previous “underweight” call was based on the fact that ESG (environmental, social and governance) discounts would continue to dampen the valuations of the sector on the long run.
RHB Research’s top picks insofar as Malaysian plantation stocks are concerned include Kuala Lumpur Kepong Bhd (target price: RM31.45); Sarawak Oil Palms Bhd (TP: RM6.35) and Ta Ann Holdings Bhd. – Feb 25, 2022
