KUALA LUMPUR (April 12): While Hong Leong Investment Bank (HLIB) Research is expecting the crude palm oil (CPO) price to remain elevated at above RM3,500 per tonne in the second quarter of 2021 (2Q21), the research firm sees CPO price to trend down more noticeably from 2H21 onwards.

“We believe CPO price will start easing from 2Q21 (albeit on a gradual basis) on the back of the absence of weather disruption (as La Nina has already subsided), and improving supply prospects of soybean,” said its analyst Chye Wen Fei, in a note released today.

Chye explained that CPO price will likely trend down more drastically in 2H21 due to better supply outlook for soybean output particularly, in US and Brazil, of which collectively account for about 65% of the world’s total soybean output; seasonally higher palm oil output in 2H; and demand pullback, when a recovery in supply of major edible oils is in sight amidst the absence of fresh demand catalyst.

Still, Chye had raise the CPO price projection for 2021 to RM3,200 per tonne, from RM2,700 per tonne, mainly to reflect strong average CPO price registered in 1Q21 of RM3,919 per tonne, and supply tightness in vegetable oils, which will likely persist into end-2Q21.

For 2022-23, on the other hand, she also raises the CPO price assumption by RM100 per tonne to RM2,800 per tonne on the back of anticipated supply of vegetable oil – in particular, soybean and palm oil – that is expected to have returned to normalcy by then.

Despite the upward revision in CPO price assumptions, she maintains a “NEUTRAL” stance on the sector, as Chye believes the current high CPO price will not sustain over the longer term.

Post revisions in target prices (TPs), she had upgraded the rating on IOI Corp Bhd to buy from hold and downgrade Hap Seng Plantations Holdings Bhd’s rating to hold from buy.

Apart from IOI Corp (BUY; TP: RM4.67), other top picks in the sector are Kuala Lumpur Kepong Bhd (BUY; TP: RM26.64), IJM Plantations Bhd (BUY; TP: RM2.31), and TSH Resources Bhd (BUY; TP: RM1.18).