Upward Momentum In CPO Prices Drives Sarawak Oil Valuation Forward
12/11/2024 (Business Today) - Sarawak Oil Palms Bhd (SOP) is poised to continue benefitting from rising crude palm oil (CPO) prices, which recently surged past RM5,000 per tonne.
This positive outlook has led RHB Investment Bank Bhd (RHB Research) to reiterate its BUY recommendation on SOP, with a revised target price of RM4.15, indicating a potential upside of 16% from the current price of RM3.59. RHB Research’s analysis suggests that SOP’s valuation remains attractive, even after recent gains, trading at a low 8.2 times projected earnings, below the seven to 11 times range typical for industry peers.
The upward momentum in CPO prices is attributed to several factors, including heightened geopolitical tensions driving up crude oil prices by 18% over two months, which supports CPO’s price. Additionally, early planting delays in South America affected soybean crops, causing soybean oil prices to increase by 14% recently.
Despite the country’s relatively modest production levels, Thailand’s decision to temporarily ban palm oil exports has added pressure to the market. Speculative factors, such as historical trends from the US election outcome, also played a role, with palm oil and soybean oil prices historically rising during the lead-up and aftermath of Donald Trump’s 2016 election win.
Looking ahead, the remainder of 2024 may see continued speculative activity in the CPO market, especially if geopolitical risks sustain crude oil prices at elevated levels. RHB Research expects that even with eventual easing, prices are unlikely to fall below RM4,000 per tonne in the near term.
Fundamentals for 2025 also appear supportive, as the research house notes factors such as low palm oil output and stock levels in Indonesia and increased biodiesel mandates. Tightening supplies in other vegetable oil markets, such as sunflower, rapeseed, and canola, could further contribute to a global oils and fats deficit next year, potentially pushing vegetable oil prices higher.