MARKET DEVELOPMENT
Last Call to ‘Buy’ These Plantation Stocks on The CPO Price Rally
Last Call to ‘Buy’ These Plantation Stocks on The CPO Price Rally
01/02/2017 (The Edge) - UOB Kay Hian is maintaining its “overweight” call on the planation sector within Singapore and the region, noting that crude palm oil (CPO) prices are likely to stay firm throughout 1H17 as supply is still relatively tight.
“We see weaker CPO prices in 2H17 vs 1H17, but maintain our price expectation of RM2,600 (S$834) for 2017. Investors should sell on strength when share prices trend higher as companies are expected to report good 4Q16 and 1Q17 earnings,” says UOB’s regional research team in a recent report.
It is also expecting CPO demand to improve marginally this year, driven by stable demand on Indonesia’s biodiesel mandate; the rolling out of the B10 biodiesel programme in Malaysia; as well as stable demand from India and China.
“If the production recovery comes in weaker than expectations due to weaker yield recovery, this will be positive for CPO prices,” state the team.
“Meanwhile, rising crude oil prices could make biodiesel blend more financially feasible as fewer subsidies are needed especially when CPO prices weaken in 2H17. This will increase demand for biodiesel and act as a support to CPO prices. Moreover, higher crude oil prices are positive for palm oil prices,” it adds.
According to UOB, the price differential between palm oil and crude oil is wide, with prices for the former coming in about US$330/tonne above the latter.
The team’s top “buy” picks for the season therefore focus on companies with younger tree age profiles and efficient management, as it believes this translates to strong production recovery and hence higher production growth and earnings.
These include Bumitama Agri and First Resources in Singapore which have both been given “buy” ratings at target prices of S$78.5 and S$1.98 respectively.
“We like Bumitama Agri for its stronger earnings growth, driven by positive production growth and a high leverage to CPO prices. Share price has lagged behind peers and provides the highest upside to our target price,” elaborates the team.
On the other hand, UOB analysts speculate that First Resources’ share price could rally above their target price to reflect the current high CPO prices and expected strong 4Q16 earnings which are to be reported on Feb 17.
The group’s fresh fruit bunches (FFB) production rate is also expected to grow y-o-y by 17.9% and 16.3% in 2017 and 2018 respectively.
As at 11.20am, shares of Bumitama Agri and First Resources are trading at 80 Singapore cents and S$1.94 respectively.
“We see weaker CPO prices in 2H17 vs 1H17, but maintain our price expectation of RM2,600 (S$834) for 2017. Investors should sell on strength when share prices trend higher as companies are expected to report good 4Q16 and 1Q17 earnings,” says UOB’s regional research team in a recent report.
It is also expecting CPO demand to improve marginally this year, driven by stable demand on Indonesia’s biodiesel mandate; the rolling out of the B10 biodiesel programme in Malaysia; as well as stable demand from India and China.
“If the production recovery comes in weaker than expectations due to weaker yield recovery, this will be positive for CPO prices,” state the team.
“Meanwhile, rising crude oil prices could make biodiesel blend more financially feasible as fewer subsidies are needed especially when CPO prices weaken in 2H17. This will increase demand for biodiesel and act as a support to CPO prices. Moreover, higher crude oil prices are positive for palm oil prices,” it adds.
According to UOB, the price differential between palm oil and crude oil is wide, with prices for the former coming in about US$330/tonne above the latter.
The team’s top “buy” picks for the season therefore focus on companies with younger tree age profiles and efficient management, as it believes this translates to strong production recovery and hence higher production growth and earnings.
These include Bumitama Agri and First Resources in Singapore which have both been given “buy” ratings at target prices of S$78.5 and S$1.98 respectively.
“We like Bumitama Agri for its stronger earnings growth, driven by positive production growth and a high leverage to CPO prices. Share price has lagged behind peers and provides the highest upside to our target price,” elaborates the team.
On the other hand, UOB analysts speculate that First Resources’ share price could rally above their target price to reflect the current high CPO prices and expected strong 4Q16 earnings which are to be reported on Feb 17.
The group’s fresh fruit bunches (FFB) production rate is also expected to grow y-o-y by 17.9% and 16.3% in 2017 and 2018 respectively.
As at 11.20am, shares of Bumitama Agri and First Resources are trading at 80 Singapore cents and S$1.94 respectively.