MARKET DEVELOPMENT
Mixed Views on Plantation Sector
Mixed Views on Plantation Sector
08/08/2014 (The Star) - Following a correction in crude palm oil (CPO) prices and the increase in soybean oil supply, some analysts have downgraded the plantation sector to a “neutral” rating.
MIDF Research and Kenanga Research downgraded the sector from “positive” and “overweight” to neutral.
On the other hand, RHB Research and PublicInvest Research are maintaining their “overweight” stance.
In a report yesterday, MIDF Research analyst Nadia Kamil said: “The price of CPO has recently retraced to RM2,300 per tonne after displaying strong recovery signals and a steep climb in the first quarter of 2014.”
She lowered the average CPO price forecasts for 2014 to RM2,600 per tonne from RM2,700 previously and toRM2,650 per tonne from RM2,800 for 2015.
She noted that the current sluggish CPO price was underpinned by the lower likelihood of the El Nino phenomenon, increase in soybean production and lower soybean oil prices as well as the insipid demand from major palm oil buyers.
“From a technical standpoint, the CPO price is still in a downtrend as the price is hovering below the trend line,” she wrote, adding that the brokerage anticipated CPO price to enter a consolidation phase ranging from RM2,200 to RM2,500 per tonne in the near term.
She said the average discount of CPO to soybean oil narrowed to US$68 per tonne in July compared to its year-to-date average of US$110 per tonne.
Kenanga Research analyst Alan Lim cut average 2014 CPO prices estimate by 10% to RM2,500 per tonne from RM2,800 and anticipated the price level to maintain into 2015.
RHB Research analyst Alvin Tai told StarBiz that he maintained his “overweight” call as the catalysts for his previous forecast were still intact albeit playing out slightly later than expected.
“We expect FFB (fresh fruit bunch) production to disappoint in the third and fourth quarters and inventory levels to remain low and may even struggle to cross the two million tonne level,” he said.
He foresaw the implementation of the biodiesel programme in Indonesia to speed up after the conclusion of the presidential election, thus spurring higher demand for CPO.
Back at home, Plantation Industries and Commodities Minister Datuk Seri Douglas Uggah Embas was reported as saying that the implementation of the B5 programme would be completed by December instead of the original target of July.
Tai also anticipated higher demand from India in the second half due to the low soybean inventory levels there as a result of a drier-than-expected planting season.
PublicInvest Research analyst Chong Hoe Leong’s overweight view is supported by the expectation of CPO production to be flat or slightly lower next year.
“CPO prices should be supported by the low inventories in the country. In Indonesia, production growth has been flattish as well,” he said.
He said the current CPO price levels of RM2,280 to RM2,300 was considered low and boded well for the implementation of biodiesel.
His top picks are Genting Plantations Bhd and Ta Ann Holdings Bhd due to the companies’ young palm trees as well as attractive valuations.
“With the kind of age profile these two companies has, we anticipate a double-digit growth in FFB production in the next three years,” he added.
He also liked Sime Darby due to the restructuring of the conglomerate, which could see it spinning off its plantation and automotive arms.
MIDF Research and Kenanga Research downgraded the sector from “positive” and “overweight” to neutral.
On the other hand, RHB Research and PublicInvest Research are maintaining their “overweight” stance.
In a report yesterday, MIDF Research analyst Nadia Kamil said: “The price of CPO has recently retraced to RM2,300 per tonne after displaying strong recovery signals and a steep climb in the first quarter of 2014.”
She lowered the average CPO price forecasts for 2014 to RM2,600 per tonne from RM2,700 previously and toRM2,650 per tonne from RM2,800 for 2015.
She noted that the current sluggish CPO price was underpinned by the lower likelihood of the El Nino phenomenon, increase in soybean production and lower soybean oil prices as well as the insipid demand from major palm oil buyers.
“From a technical standpoint, the CPO price is still in a downtrend as the price is hovering below the trend line,” she wrote, adding that the brokerage anticipated CPO price to enter a consolidation phase ranging from RM2,200 to RM2,500 per tonne in the near term.
She said the average discount of CPO to soybean oil narrowed to US$68 per tonne in July compared to its year-to-date average of US$110 per tonne.
Kenanga Research analyst Alan Lim cut average 2014 CPO prices estimate by 10% to RM2,500 per tonne from RM2,800 and anticipated the price level to maintain into 2015.
RHB Research analyst Alvin Tai told StarBiz that he maintained his “overweight” call as the catalysts for his previous forecast were still intact albeit playing out slightly later than expected.
“We expect FFB (fresh fruit bunch) production to disappoint in the third and fourth quarters and inventory levels to remain low and may even struggle to cross the two million tonne level,” he said.
He foresaw the implementation of the biodiesel programme in Indonesia to speed up after the conclusion of the presidential election, thus spurring higher demand for CPO.
Back at home, Plantation Industries and Commodities Minister Datuk Seri Douglas Uggah Embas was reported as saying that the implementation of the B5 programme would be completed by December instead of the original target of July.
Tai also anticipated higher demand from India in the second half due to the low soybean inventory levels there as a result of a drier-than-expected planting season.
PublicInvest Research analyst Chong Hoe Leong’s overweight view is supported by the expectation of CPO production to be flat or slightly lower next year.
“CPO prices should be supported by the low inventories in the country. In Indonesia, production growth has been flattish as well,” he said.
He said the current CPO price levels of RM2,280 to RM2,300 was considered low and boded well for the implementation of biodiesel.
His top picks are Genting Plantations Bhd and Ta Ann Holdings Bhd due to the companies’ young palm trees as well as attractive valuations.
“With the kind of age profile these two companies has, we anticipate a double-digit growth in FFB production in the next three years,” he added.
He also liked Sime Darby due to the restructuring of the conglomerate, which could see it spinning off its plantation and automotive arms.