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HLIB ‘neutral’ on plantation sector, expects mixed Q2 results
calendar18-08-2023 | linkFree Malaysia Today | Share This Post:

Its market call is based on mixed fresh fruit bunches output growth, slightly lower CPO prices.


17/08/2023 (Free Malaysia Today), Petaling Jaya - Hong Leong Investment Bank Bhd (HLIB) has maintained its “neutral” stance on the plantation sector as it expects plants to report a mixed set of performance for the second quarter of 2023 (Q2 2023).


The research house said the expectation was premised on mixed fresh fruit bunches (FFB) output growth and slightly lower crude palm oil (CPO) prices.


“Despite Q2 being a seasonally higher productivity quarter with Malaysia’s CPO production rising by 6.1% quarter-on-quarter (q-o-q), three out of six planters under our coverage clocked in lower FFB output in Q2 2023, namely FGV, Hap Seng Plantations and Kuala Lumpur Kepong,” it said in a note today.


HLIB opined that most planters will likely register a decline in their upstream earnings, mainly on the back of significantly lower CPO prices and higher production costs arising from minimum wage hikes, elevated fertiliser prices and higher diesel prices.


“Despite easing labour shortages in Malaysian estates, only four out of six planters under our coverage registered higher FFB production, while FGV and Sime Darby Plantation still registered year-on-year (y-o-y) declines in their Q2 2023 FFB output, at -18.6% and -1.9% y-o-y, respectively.


“This is due to less favourable weather conditions at FGV’s estates and below-potential harvester’s productivity,” it said.


The research house noted that year-to-date, the CPO price has averaged at RM3,916 per tonne. Thus, HLIB maintains its CPO price assumption of RM4,000 per tonne for 2023.


The arrival of El Nino, coupled with potentially stronger demand arising from palm oil’s improved price competitiveness, weak ringgit and low stock levels among major palm oil-consuming countries would support CPO prices during the second half of 2023, it noted.


“Moving into 2024, we maintain our projected CPO price of RM3,800 per tonne, based on the assumption that El Nino will turn out to be a moderate one and would dissipate by end-2023,” it added.