KUALA LUMPUR: The shuttering of plantation operations in six Sabah districts will likely drag on April CPO inventory level and provide support to prices in the near-term, says Kenanga research.

"It is still early to make any earnings adjustment from the plantation ban but we believe the impact of a decline in production may be mitigated by higher CPO price," it said in a Monday note.

CPO prices have fallen 19% year-to-date to RM2,456 per metric tonne due to mounting concerns over the Covid-19 pandemic.

The extension of the movement control order (MCO) by two weeks to April 14 is expected to reult in a drop of 155,000 metric tonnes or 9% of the national monthly production, said Kenanga, which has a neutral rating on the sector.

It added that the order to suspend activity in estates and mills has affected nearly 75% of the state's CPO production and about 100,000 workers.

While most plantation players have exposure to Sabah given the fertile soil conditions, notable players with significant exposure include FGV (38%), Hap Seng Plantations, Genting Plantations (33%), KLK (20%) and IOI Corp (68%).

"Hap Seng Plantations and Kretam would be the most severely affected plantation given that almost all of their estates are in the affected areas," said Kenanga.

It added that Sarawak Plantation and Ta Ann are not affected as they do not have any exposure in Sabah.

Kenanga has a 2020 CPO price forecast of RM2,300 per metric tonne.