HONG Leong Investment Bank (HLIB) Research is in sync with JP Morgan Malaysia that crude palm oil (CPO) price will likely remain at elevated levels in the next few months – possibly until 1H 2022.
This is supported by (i) weaker production outlook for corn and soybean in South America; and (ii) the Indonesian Government’s recent move to expand its export permit requirement for all palm oil products which will likely disrupt palm oil supply chain.
“While we continue to believe that a pullback in CPO price will materialise when palm oil output recovers, this hinges on several uncertainties,” opined analyst Chye Wen Fei in a plantation sector outlook.
“Besides, ESG (environmental, social and governance) concerns on the sector may have hit rock bottom and should ease soon.”
Moving forward, HLIB Research raised its 2022-2024 CPO price forecasts to RM4,300/RM3,300/RM3,300/metric tonne (MT) (vs RM3,500/RM2,900/RM2,900/MT previously).
For now, the research house reiterated its “overweight” stance on the sector with its top picks being IOI Corp Bhd (“buy”; target price: RM4.35), Kuala Lumpur Kepong Bhd (KLK) (“buy”; target price: RM25.33) and Sime Darby Plantation Bhd (“buy”; target price: RM4.48).
Meanwhile, JP Morgan reckoned that ASEAN plantation stocks may be back in vogue, especially among investors who are less tied up with sustainability metrics given they are able to ride on the strong CPO price rally.
Yesterday (Feb 15), the bank upgraded its call on the ASEAN plantation sector to “overweight” while upgrading its CPO price assumption against the backdrop of supply concerns amid years of reduction in new planting.
In the view of JP Morgan Malaysia equities research head Jeffrey Ng, rotation into inflation proxies (commodities) might persist amid “rising interest from non-ESG-bound foreign funds” and low domestic institutional holdings, coupled by prospects of US rate hikes.
This is on the back of consistent cuts in Indonesia’s new planting since 2012 as well as Malaysia’s replanting efforts which could mean that near-term supply growth will decelerate.
CPO prices settled at a fresh record of RM5,657/MT yesterday (Feb 16), having scaled new highs this week on expectations of improved demand following India’s import tax cut. The commodity has risen by over 20% this year.
Ng forecasts CPO price to be at around RM5,000 in 2022 and 2023. On this note, JP Morgan upgraded to “overweight” its calls on Sime Plantation (target price: RM6.80), KLK (target price: RM30) and Genting Plantations Bhd (target price: RM12). He also raised IOI to “neutral” (target price: RM4). – Feb 16, 2022
Main photo credit: Malay Mail
