Analysts neutral on plantation sector after jump in palm oil supply

TheEdge Fri, Sep 11, 2020 10:42am - 7 months ago


KUALA LUMPUR (Sept 11): Hong Leong Investment Bank (HLIB) Research has reiterated its "neutral" rating of the plantation sector after palm oil inventory closed marginally higher at 1.7 million tonnes in August as higher output and lower exports were partly offset by lower imports and higher domestic consumption.

Following this, the research house named TSH Resources Bhd as its top pick with a "buy" call and target price (TP) of RM1.14.

At the time of writing, shares in TSH Resources were 1.5 sen or 1.62% higher at 94 sen, bringing its market value to RM1.3 billion. It saw some 679,900 shares change hands.

On forecasts, HLIB Research analyst Chye Wen Fei said the research house believes the stockpile will remain on an uptrend in the near term due to seasonally stronger output and lower exports to key importing countries, in particular India as its edible oil inventory had normalised since July and China in absence of seasonal demand.  

“YTD (year to date), CPO (crude palm oil) prices averaged at RM2,526/tonne. While we are still holding the view that [the] current high CPO prices will unlikely be sustained into the remaining months of 2020, the full-year average price will likely come in higher than our assumption of RM2,350/tonne, possibly averaging RM2,450-RM2,500/tonne.

“Pending a further review of the sector, we keep our assumptions for now at RM2,350- RM2,400/tonne for 2020-2021,” said the analyst in a note.

Meanwhile, PublicInvest Research noted that CPO prices had gone above the RM2,800/metric tonnes (MT) level since last week, led by increasing concerns over worker shortages and demand recovery from the reopening of economies.

Nevertheless, the research house thinks the current CPO prices may not be sustainable in the final quarter given the surge in palm oil supply during the peak production season.

Thus, it maintained "neutral" on the sector as it sees limited upside from prevailing levels.

“CPO production rose 3.1% m-o-m (month-on-month) to 1.86 million MT after seeing a drop of 4.2% in the previous month. The stronger production was mainly contributed by Peninsular Malaysia (+1% m-o-m) and East Malaysia (+5.8%).

“We expect to see continuous growth in production in the next three months before hitting a peak in October/November. However, the main concern is about worker shortages with a majority of plantation players short by 5%-10% following the Malaysian government’s barring of foreign worker hiring till year end,” said PublicInvest Research analyst Chong Hoe Leong in a note.

Meanwhile, he said palm oil exports rose 10% in the first 10 days of September, and he thinks India is likely to see aggressive restocking this month in anticipation of an increase in demand during the Diwali celebration in mid-November.

The Bursa Malaysia Plantation Index stood at 7,020.54 at the time of writing today, down by 0.02% or 1.56 points, with Boustead Plantations Bhd, Rimbunan Sawit Bhd, TDM Bhd, TSH Resources Bhd and FGV Holdings Bhd as active stocks in the morning session.

At 10.01am, Boustead Plantations' share price was unchanged at 40.5 sen. Rimbunan Sawit fell 2.04% or half a sen to 24 sen and TDM fell 2.27% or half a sen to 21.5 sen, while FGV was one sen or 0.88% higher at RM1.15.






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