KUALA LUMPUR (July 13): Despite the stronger export growth, research houses and investment banks are maintaining their “neutral” calls on the plantation sector as the country recorded the fourth consecutive monthly rise in palm oil inventory with domestic consumption shrinking.
They also projected the crude palm oil (CPO) price to hover between RM3,000 and RM4,000 per tonne.
Kenanga Research projected the crop to face headwinds such as price volatility with the environmental, social, and governance (ESG) factors continuing to weigh in on the sector.
It also said that the resolution of the Withhold Release Order by the United States Customs and Border Protection would be an additional share price catalyst for the plantation companies on the local bourse, which would have a spillover effect on the sector.
“Our integrated pick with defensive overall margin against the CPO price variability is Kuala Lumpur Kepong Bhd (KLK) with a target price (TP) of RM24.00. We also like Sime Darby Plantation Bhd (TP: RM4.95) as its earnings are relatively shielded by forward sales,” it said.
Meanwhile, Public Investment Bank, maintaining its “neutral” call on the sector, also noted the stronger pickup in production to be downside risks to CPO prices in the second half of the year.
On the bright side, it said the ESG perception has not hampered merger-and-acquisition activities in the plantation industry.
“Both KLK and IOI Corp Bhd have recently announced the acquisitions of a substantial stake in IJM Plantations Bhd and plantation in Sabah, respectively.
“Meanwhile, TSH Resources Bhd is disposing of 3,007-hectare plantation land bank in Sabah. This reflects the long-term commitment of the big plantation players who have more ambitious plans for their core business,” it said in a note today.
To recap, the nation’s palm oil inventories extended their uptrend in June 2021, rising by 2.8% to record a nine-month high of 1.61 million tonnes.
Nevertheless, the number was lower than the consensus estimate of 1.69 million tonnes.
Meanwhile, the stock-to-usage ratio was unchanged at 8%.
Exports jumped by 11.8% month-on-month to a six-month high of 1.42 million tonnes, mainly driven by the growth in exports to China (+47.3%), EU (+1.1%), and Pakistan (+32.3%), although this was partially offset by the fall in exports to India (-27.8%) and the US (-45.8%).
