ta ann holdings
PETALING JAYA: The plantation sector is expected to make a comeback after two years of a downcycle, as crude palm oil (CPO) prices rebound gradually in anticipation of falling global palm oil inventories, according to PublicInvest Research (PIVB Research).
The research house is upgrading its sector call to “overweight” from “neutral” in anti-cipation of an upward trending CPO prices.
“We raise our average CPO price assumption from RM2,200/mt to RM2,400/mt in 2020, which is a 15% increase from prevailing market prices. We expect CPO prices to start rising towards end-2019 after the peak production season is over,” it said in its note today.
PIVB Research noted that a decline in global palm oil inventories is expected in 2020 on the back of slower palm oil production growth, higher biodiesel consumption and stronger demand from China and India.
“We project Malaysia’s palm oil inventories to fall to two million metric tonnes by mid-2020. Meanwhile, inventories in Indonesia are likely expected to inch down to about three million metric tonnes,” it said.
Palm oil production is expected to be weak due to a number of factors.
“We suspect smallholder plantation, which makes up 17% of Malaysia’s and 40% of Indonesia’s planted area, have cut down the fertiliser application over the last one year due to lacklustre CPO prices. The impact could pose a threat to the national production as it could cause a significant reduction in bunch weight and fruit abortion over the near-term.
“Ripening of fruit bunches should also slow down, making a longer period needed for harvesting. In addition, the prolonged dry weather period during May-Sept could affect the nutrient uptake and cause moisture stress in palms. Depending on the severity, the lagged effect on the production will be seen two years later,” PIVB said.
However, a higher demand from China and India is also expected, due to the favourable import duty policy in India while China has been hard-hit by African swine flu, resulting in weaker demand for soy meal, which is the main feed for their farming industry.
“Consequently, it makes it less appealing to buy soybean for crushing purpose and palm oil would be the most suitable replacement for soybean oil,” the note said.
Meanwhile, Indonesia’s push to increase its domestic consumption of palm oil with a higher biodiesel mandate can generate additional 2.5 million palm oil demand.
“The imposition of anti subsidy duties on Indonesian biodiesel exports by the EU allows Malaysia to take away some market share from its counterpart. Malaysian biodiesel exports registered an impressive 33% year-on-year growth.
“Domestic consumption under the B10 mandate will be extended to heavy vehicles next year, bringing the total biodiesel demand to 1.6 million mt from 1.3 million mt,” it said.
PIVB’s top picks for the sector are Kuala Lumpur Kepong Bhd, Genting Plantations Bhd, TSH Resources Bhd and Ta Ann Holdings Bhd.
KUALA LUMPUR, Sept 19 — MIDF Research set a “negative” call on the plantation sector after considering its challenges, including the European Union (EU)’s decision to phase out palm oil. The sector also faces difficulties to achieve 100 per…
PETALING JAYA: Kenanga Research has cut its crude palm oil (CPO) price forecast for 2019-2020 to RM2,000-RM2,200 from RM2,400-RM2,200 per tonne.
This is premised on the palm-oil biodiesel ban from the European Union (EU), a potential CPO inventory pickup in the second half of the year and mounting trade war tensions depressing CPO prices.
Following the revision, the research house slashed planters’ earnings by 6-97% for FY19 and 7-79% for FY20E with pure upstream players such as IJM Plantations Bhd and Hap Seng Plantations Holdings Bhd taking bigger hits.
“We believe planters’ earnings will hit a rough patch in coming quarters with CPO prices hovering around current levels, which will likely overshadow any production pickup in the second half of 2019.”
Kenanga said while biodiesel mandates seem to be panning out well (expected to absorb 13% of CPO production in Indonesia and 4% in Malaysia), the intensifying US-China trade war tensions are likely to discourage soybean oil prices like what happened last year.
“In our opinion, this will dwarf any positive trade/demand impact on CPO and keep its prices under pressure in the near term, as the two commodities are close substitutes with their prices highly correlated (>0.90).
“Coupled with a potential inventory pickup in the second half of 2019 (to 3.0-3.5 million tonnes levels), we believe the possibility of a strong CPO price recovery in the near term can be practically ruled out, leaving 2019 an unexciting year for most planters.”
Nevertheless, it said should the Chinese and/or biodiesel demand be stronger-than-expected, resulting in falling stockpiles in the second half and a sharp recovery in CPO prices, it would review the sector call and target prices of planters under its coverage.
Kenanga downgraded the plantation sector from “neutral” to “underweight”, with only Ta Ann Holdings Bhd set to outperform due to its core net profit compound annual growth rate of 12.8% driven by improved log production, profitable status and attractive 4% dividend yield.
The research house was previously hopeful of a handsome CPO price recovery by June 2019 as stockpiles fall and demand from China picks up.
“However, despite the positives nicely falling into place, negative news flows vis-à-vis palm-oil biodiesel ban from the Europe has proven to be a major killjoy.”
“As we move closer to the second half, chances of CPO price reaching our 2019 target of RM2,400 per tonne are becoming next to zero.”
KUALA LUMPUR, May 13 — Maybank IB Research expects the plantation sector to see continued earnings pressure in the first quarter of 2019 (Q1 2019), mainly on weak spot crude palm oil (CPO) average selling price (ASP). In a note today, it said…
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