MARKET DEVELOPMENT
Plantation Stocks Advance on Bullish CPO Price
Plantation Stocks Advance on Bullish CPO Price
14/02/2017 (The Star) - Bullish crude palm oil (CPO) prices have driven plantation shares upwards in the past four months and many planters are expected to post good earnings in their soon-to-be released 2016 fourth quarter (Q4) results and the first quarter results of 2017.
Analysts said CPO prices will continue to trade higher at between RM2,800 and RM3,300 per tonne in the first half of this year, given the current tight palm oil inventory at 1.54 million tonnes.
Sime Darby Bhd’s share price has gained 18.7% in the past four months.
This is followed by Sarawak Oil Palms Bhd (SOP) at 14.4%, TH Plantations Bhd at 11% and Genting Plantations Bhd (GENP) at 8.9% respectively.
On Bursa yesterday, Sime rose eight sen to RM9.07, GENP added two sen to RM11.54 while SOP eased two sen to RM3.98 and TH Plantations lost one sen to RM1.20.
According to UOBKayHian, Sime Darby, GENP and Kuala Lumpur Kepong Bhd were likely to report better quarter-on-quarter results as production recovered strongly in Q4 2016, supported by recovery at their Indonesian estates.
Among the three companies, GENP would likely to benefit from the CPO price rally in Q4 2016 as “its CPO sales being mostly spot-based tracked closer to the Malaysian Palm Oil Board’s spot prices”, added the research unit in its latest plantation report.
In January this year, the price of CPO increased 2.1% month-on-month and 45.2% year-on-year at RM3,200 per tonne respectively.
Kenanga Research has a near term “positive” call and a long term “neutral” call on the plantation sector.
It has updated its first quarter 2017 CPO prices trading range at RM2,850 - RM3,360 per tonne, and was unchanged on its estimated CPO average price for 2017 at RM2,550 per tonne respectively.
In view of the likely strong end-February results season, the research unit said: “We think investors could consider taking profits from planters.”
Nevertheless, in view of the production recovery, Kenanga continues to favour planters with above average growth prospects such as its top pick - Ta Ann Holdings Bhd - which should also see improvement in its timber earnings, thanks to the stronger US dollar.
Its other top picks include high growth planters such as IJM Plantations Bhd and United Malacca Bhd given their young planted areas in Kalimantan as well as a laggard pure play, IOI Corp Bhd for its cost-efficiency advantage and expected client recovery after the resolution of its mid-2016 RSPO suspension.
CIMB Research also expects plantation companies to deliver a strong set of Q4 2016 earnings as “the strong CPO price in Q4 will more than offset lower output.”
However, it maintained a neutral on the plantation sector rating as CIMB is of the view that the current high CPO price may not be sustainable in second half 2017.
The research unit has projected CPO prices to trade in the RM3,000-RM3,300 per tonne range this month, backed by bullish factors namely a weak ringgit, low stockpiles, lower palm oil output and higher biodiesel mandates in Indonesia.
Other factors capping the CPO prices upsides are the further release of rapeseed oil stocks by China’s government, competition from soybean oil and slower global economic growth.
As at 5pm yesterday, third month benchmark CPO futures for April was traded RM38 lower at RM3,033 per tonne on some profit-taking activity.
Analysts said CPO prices will continue to trade higher at between RM2,800 and RM3,300 per tonne in the first half of this year, given the current tight palm oil inventory at 1.54 million tonnes.
Sime Darby Bhd’s share price has gained 18.7% in the past four months.
This is followed by Sarawak Oil Palms Bhd (SOP) at 14.4%, TH Plantations Bhd at 11% and Genting Plantations Bhd (GENP) at 8.9% respectively.
On Bursa yesterday, Sime rose eight sen to RM9.07, GENP added two sen to RM11.54 while SOP eased two sen to RM3.98 and TH Plantations lost one sen to RM1.20.
According to UOBKayHian, Sime Darby, GENP and Kuala Lumpur Kepong Bhd were likely to report better quarter-on-quarter results as production recovered strongly in Q4 2016, supported by recovery at their Indonesian estates.
Among the three companies, GENP would likely to benefit from the CPO price rally in Q4 2016 as “its CPO sales being mostly spot-based tracked closer to the Malaysian Palm Oil Board’s spot prices”, added the research unit in its latest plantation report.
In January this year, the price of CPO increased 2.1% month-on-month and 45.2% year-on-year at RM3,200 per tonne respectively.
Kenanga Research has a near term “positive” call and a long term “neutral” call on the plantation sector.
It has updated its first quarter 2017 CPO prices trading range at RM2,850 - RM3,360 per tonne, and was unchanged on its estimated CPO average price for 2017 at RM2,550 per tonne respectively.
In view of the likely strong end-February results season, the research unit said: “We think investors could consider taking profits from planters.”
Nevertheless, in view of the production recovery, Kenanga continues to favour planters with above average growth prospects such as its top pick - Ta Ann Holdings Bhd - which should also see improvement in its timber earnings, thanks to the stronger US dollar.
Its other top picks include high growth planters such as IJM Plantations Bhd and United Malacca Bhd given their young planted areas in Kalimantan as well as a laggard pure play, IOI Corp Bhd for its cost-efficiency advantage and expected client recovery after the resolution of its mid-2016 RSPO suspension.
CIMB Research also expects plantation companies to deliver a strong set of Q4 2016 earnings as “the strong CPO price in Q4 will more than offset lower output.”
However, it maintained a neutral on the plantation sector rating as CIMB is of the view that the current high CPO price may not be sustainable in second half 2017.
The research unit has projected CPO prices to trade in the RM3,000-RM3,300 per tonne range this month, backed by bullish factors namely a weak ringgit, low stockpiles, lower palm oil output and higher biodiesel mandates in Indonesia.
Other factors capping the CPO prices upsides are the further release of rapeseed oil stocks by China’s government, competition from soybean oil and slower global economic growth.
As at 5pm yesterday, third month benchmark CPO futures for April was traded RM38 lower at RM3,033 per tonne on some profit-taking activity.