KUALA LUMPUR (June 25): MIDF Research has raised its 2021 crude palm oil (CPO) price forecast to RM3,200 a tonne, from RM3,000 previously.

In a note, the research house said that it has maintained its positive stance on the plantation sector.

MIDF views that the palm oil supply tightness situation will likely remain until at least the third quarter of the year, given the low growth in output.

From a demand perspective, it expects palm oil importers such as India and China to import more of the edible oil to replenish their stock as economic activities further reopen.

"On another note, price-wise, we anticipate that the CPO price will soften in 2HCY21 as we expect: (1) production to recover due to better weather condition; (2) stockpiles to start improving slowly as it already entered a higher crop season; and (3) higher production of soybean.

"Nonetheless, we opine that the palm oil price would not ease drastically or go below RM2,500 level due to these factors namely: (1) unresolved labour shortages due to border closure; (2) implementation of MCO rules on agribusiness; (3) upbeat export demand; (4) slow production growth; and (5) firm demand for palm oil-based biodiesel," it added.

Following the revision of its 2021 CPO price forecast, it is also revising upwards financial year 2021 earnings forecasts for plantation stocks under its coverage by 3.3% to 10.1%.

Its top sector pick is Kuala Lumpur Kepong Bhd (KLK) ("buy" call with a RM28.90 target price [TP]).

The research house opines that moving forward, KLK's nitrile latex business is expected to improve on the back of better sales from its Malaysia plant.

Meanwhile, KLK's replanting programme of 1,500ha is expected to improve its production level in the longer term.

As far as its acquisition of IJM Plantations Bhd is concerned, an earnings enhancement of 7.8% is expected if KLK fully acquires IJM Plantations.

Meanwhile, it expects KLK's earnings to increase by 4.4% for the initial 56.2% acquired.

It also likes TSH Resources Bhd ("buy" call with RM1.49 TP) given the firm's young tree age profile at its Indonesia operations, and its fresh fruit bunch production is expected to remain robust as it continues to maintain its commitment to diligently carrying out the fertiliser application.

"Meanwhile, we like Ta Ann Holdings ("buy" call with RM4.11 TP) given its upstream division, which continues to perform well, mainly contributed by its Malaysia and Indonesia operations. Additionally, we expect the group's timber segment to potentially turn around given an anticipated favourable ASP (average selling price) and sales volume of its wood-based products from major importers such as India and Japan on the resumption of major economic activities," MIDF added.

CPO futures for delivery in August were trading RM53 higher at RM3,545 a tonne at 10.30am.