MARKET DEVELOPMENT
Plantation Companies’ Earnings Poised for Recovery, Supported by Higher CPO Prices
Plantation Companies’ Earnings Poised for Recovery, Supported by Higher CPO Prices
07/01/2014 (Borneo Post) - The earnings for plantation companies are said to be at an inflection point, poised to grow stronger along with higher crude palm oil (CPO) prices in 2014.
Kenanga Investment Bank Bhd’s research division (Kenanga Research) yesterday said CPO prices is expected to rise to an average of RM2,800 per metric tonne (MT) in 2014 thanks to strong demand from Indonesian biodiesel industry and lower inventories of palm oil throughout the first quarter of 2014 (1Q14).
“As a result of better CPO prices, we think planters’ earnings are at an inflection point with quarterly results expected to show significantly improvement year-on-year, starting from the fourth quarter of 2013 (4Q13) onwards and last throughout 2014.
“We expect the trend of earnings recovery to last throughout 2014 as we believe CPO prices should improve y-o-y to RM2,800 per MT from the low base of RM2,400 per MT in 2013,” he said.
He noted that for the first time in two years, average CPO prices in 4Q13 have moved up steadily.
Lim observed that the change in direction for company’s earnings from eight successive quarters of earnings decline y-o-y to earnings growth of at least 10 per cent should be adequate to serve as a re-rating catalyst for the plantation
sector.
The research firm observed data from Malaysian Palm Oil Board (MPOB) in November last year has pointed to lower palm oil imports into Malaysia.
It explained that as palm oil imports into Malaysia became less, the situation will limit inventory build-up in Malaysia thus providing support to CPO prices.
Moreover, the research firm said Malaysia’s palm oil stock level has peaked in November last year and is expected to decline due to seasonally lower production in December.
Kenanga Research also believed that the downtrend in palm oil stock level can be sustained throughtout 1Q14 while CPO prices is expected to continue to appreciate to RM2,900 per MT by March 2014.
It added the tapering of QE will also have a positive impact on CPO prices as the strengthening of the US Dollar due to the tapering will provide a more competitive environment for the movement of CPO prices against soybean oil prices.
Kenanga Research observed recently soybean oil prices have declined to below US$39 cents per pound due to higher supply in the US and expectations of higher soybean crop from South America.
It added from the latest forecast from US Department of Agriculture for soybean prices, the downside movement is very limited.
Therefore, with such a favourable operating environment for the plantation sector, earnings for plantation companies among others such as IOI Corporation Bhd, TSH Resources Bhd, Sime Darby Bhd, Kuala Lumpur Kepong Bhd, PPB Group Bhd, Ta Ann Holdings Bhd and CB Industrial Product Holding Bhd will perform well in 2014.
Kenanga Investment Bank Bhd’s research division (Kenanga Research) yesterday said CPO prices is expected to rise to an average of RM2,800 per metric tonne (MT) in 2014 thanks to strong demand from Indonesian biodiesel industry and lower inventories of palm oil throughout the first quarter of 2014 (1Q14).
“As a result of better CPO prices, we think planters’ earnings are at an inflection point with quarterly results expected to show significantly improvement year-on-year, starting from the fourth quarter of 2013 (4Q13) onwards and last throughout 2014.
“We expect the trend of earnings recovery to last throughout 2014 as we believe CPO prices should improve y-o-y to RM2,800 per MT from the low base of RM2,400 per MT in 2013,” he said.
He noted that for the first time in two years, average CPO prices in 4Q13 have moved up steadily.
Lim observed that the change in direction for company’s earnings from eight successive quarters of earnings decline y-o-y to earnings growth of at least 10 per cent should be adequate to serve as a re-rating catalyst for the plantation
sector.
The research firm observed data from Malaysian Palm Oil Board (MPOB) in November last year has pointed to lower palm oil imports into Malaysia.
It explained that as palm oil imports into Malaysia became less, the situation will limit inventory build-up in Malaysia thus providing support to CPO prices.
Moreover, the research firm said Malaysia’s palm oil stock level has peaked in November last year and is expected to decline due to seasonally lower production in December.
Kenanga Research also believed that the downtrend in palm oil stock level can be sustained throughtout 1Q14 while CPO prices is expected to continue to appreciate to RM2,900 per MT by March 2014.
It added the tapering of QE will also have a positive impact on CPO prices as the strengthening of the US Dollar due to the tapering will provide a more competitive environment for the movement of CPO prices against soybean oil prices.
Kenanga Research observed recently soybean oil prices have declined to below US$39 cents per pound due to higher supply in the US and expectations of higher soybean crop from South America.
It added from the latest forecast from US Department of Agriculture for soybean prices, the downside movement is very limited.
Therefore, with such a favourable operating environment for the plantation sector, earnings for plantation companies among others such as IOI Corporation Bhd, TSH Resources Bhd, Sime Darby Bhd, Kuala Lumpur Kepong Bhd, PPB Group Bhd, Ta Ann Holdings Bhd and CB Industrial Product Holding Bhd will perform well in 2014.