WHILE supply and demand of vegetable oils continue to look tight for 1H 2022 thus keeping prices elevated, stock/usage ratios for major vegetable oil complexes and crude palm oil (CPO) are expected to improve which implies that CPO prices should moderate in 2H 2022.
Nevertheless, RHB Research emphasised that many uncertainties abound with prices moderating unless the below wild cards take place:
- Zero planting and harvesting done in Russia and Ukraine this season: The research house assumed that there will be some planting, harvesting and exporting of oilseeds and fertiliser in Russia and Ukraine.
Already some 803,200 hectares in 22 regions have been planted as of April 7, just one week into the planting season. Oil World estimates about three million metric tonnes (MT) of stock to be stuck in Ukraine this season (vs 100,000-200,000 MT in previous years);
- Extreme climate conditions recurring in 2022: RHB Research assumed no El Nino/La Nina for the rest of 2022;
- Labour shortage in Malaysia not being resolved: The research house assumed there will be some resolution in 2H 2022 as borders have reopened; and
- Reductions made to Indonesia’s biodiesel mandate: RHB Research assumed no changes for the time being.
The research house came out with the above assessment as Malaysia’s palm oil stockpile declined further by 3% month-on-month (mom) to 1.47 million tonnes in March as output recovery was more than offset by higher exports and domestic consumption coupled with lower imports.
“We believe consumers switched back to palm oil in March since CPO moved back to trade at a discount to soybean oil,” justified the research house. “However, we note that stock levels remained low in consuming countries, significantly below historical averages due to demand rationing activities.”
All-in-all, RHB Research retained its “neutral” outlook on the regional plantation sector by preferring purer Malaysian players as well as those with downstream capacities in Indonesia who will be able to benefit from the current regulatory structure.
Its top three Malaysian regional “buys” are Kuala Lumpur Kepong (KLK) (target price: RM31.45); Sarawak Oil Palms Bhd (TP: RM6.05) and Ta Ann Holdings Bhd (TP: RM6.40).
Meanwhile, UOB Kay Hian Research expects CPO prices to remain high at RM5,000-RM6,000/MT during 1H 2022 in view of the short-term global vegoil disruption.
“We maintain “market weight” and expect Malaysian pure upstream players to benefit the most, leveraging on the unprecedentedly high CPO prices,” projected analysts Leow Huey Chuen and Jacquelyn Yow.
“Our top pick would still be Hap Seng Plantation Bhd (“buy”; TP: RM3.15) which will benefit the most as it only sells in the spot market with better CPO ASP (average selling price) as compared with its peers, thanks to its sustainability certifications.”
Among the big-cap plantations in Malaysia, UOB Kay Hian Research prefers KLK as it is expected to see stronger production recovery in FY2022 by riding on current high prices. Also under its radar is Sime Darby Plantations Bhd (”hold”; RM5.45) which has the largest CPO volume, hence its earnings have the highest leverage due to rising CPO prices. – April 12, 2022
