KUALA LUMPUR (Jan 7): UOB Kay Hian has raised its crude palm oil (CPO) average selling price (ASP) forecast for 2021 to RM3,000 per tonne, from RM2,600 per tonne, as the current price has increased more than expected.

The research house’s analysts Leow Huey Chuen and Jacquelyn Yow said in a note today CPO future contracts for January and February 2021 hit RM4,000 per tonne yesterday, driven by stronger soyoil prices and concerns about weak CPO production continuing into the first quarter of 2021 (1Q21).

“With a higher-than-expected current CPO price that is likely to sustain for at least another quarter, we have thus revised up our CPO price assumption by 15.4% for 2021 to RM3,000 per tonne,” they said.

However, they maintained their view that prices may weaken as palm oil production recovers towards end-3Q21 and inventories could then start to rebuild.

According to them, Malaysia's palm oil inventory level is likely to have hit a 13-year low in December 2020, with palm oil supply expected to stay tight in the first half of 2021 and tight global vegetable oil supply among the factors that support current high prices.

Based on their higher CPO price assumptions, they said the potential sector earnings upside in 2021 is 17% for Malaysian planters.

“We prefer pure upstream players with only Malaysia-skewed operations, i.e. Hap Seng Plantations Holdings Bhd, Sarawak Oil Palms Bhd and Kim Loong Resources Bhd as they would benefit more from higher selling prices versus peers with Indonesia exposure,” they said, adding that pure upstream Malaysian players will benefit the most from higher CPO selling prices with the absence of an aggressive Indonesian export levy structure.

Among the big caps in Malaysia, they upgraded Kuala Lumpur Kepong Bhd (KLK) to "buy" from "hold".

The upgrade was on the back of its undemanding valuation, compared with other big-cap plantation peers, its small exposure to rising glove demand through its associate company Synthomer as well as the expansion of its current glove operation into nitrile gloves.