MARKET DEVELOPMENT
RHB Research Remains Overweight on Plantations
RHB Research Remains Overweight on Plantations
14/03/2014 (The Star) - RHB Research maintains its Overweight outlook on plantations and it expects better quarters ahead on the back of rising crude palm oil (CPO) prices and lower production costs.
It said on Friday the latest quarterly results for the plantation companies under its coverage were largely above expectations. Six out of 11 reported above estimate results, four booked numbers that were in line and only one company was below forecasts
The six were IJM Plantations (IJMP), Felda Global Ventures (FGV), TH Plantations (THP), Genting Plantations (GENP), CB Industrial Product (CBIP) and TSH Resources (TSH).
Four companies had in line results: Kuala Lumpur Kepong (KLK), ii) Sime Darby (SIME), IOI Corp (IOIC) and TDM (TDM). Only one, Sarawak Oil Palms (SOP),
was below expectations on lower than expected CPO price achieved.
“Dry weather affecting production. While fresh fruit bunches (FFB) production of most companies was actually below expectations, on extreme weather issues, this was offset by lower production costs and effective tax rates due to deferred tax writebacks.
RHB Research said most companies acknowledged that dry weather was experienced in their Malaysian and Indonesian estates in 4Q and that this weather is still prevalent, resulting in a reduction in their production forecasts/targets for the year.
However, as a result of lower fertiliser costs, most companies reported lower CPO production costs during the quarter.
For companies with downstream operations like IOI Corp, Sime, KLK and FGV, most reported margins improvement and profitability on the back of higher sales volumes.
“We maintain our OVERWEIGHT stance on the sector. We believe this is still the early stage of a bull market, as funds have just started to flow into the palm oil sector and valuations remain inexpensive. Our Top Picks in Malaysia include IOI Corp, SOP and Jaya Tiasa,” it said.
It said on Friday the latest quarterly results for the plantation companies under its coverage were largely above expectations. Six out of 11 reported above estimate results, four booked numbers that were in line and only one company was below forecasts
The six were IJM Plantations (IJMP), Felda Global Ventures (FGV), TH Plantations (THP), Genting Plantations (GENP), CB Industrial Product (CBIP) and TSH Resources (TSH).
Four companies had in line results: Kuala Lumpur Kepong (KLK), ii) Sime Darby (SIME), IOI Corp (IOIC) and TDM (TDM). Only one, Sarawak Oil Palms (SOP),
was below expectations on lower than expected CPO price achieved.
“Dry weather affecting production. While fresh fruit bunches (FFB) production of most companies was actually below expectations, on extreme weather issues, this was offset by lower production costs and effective tax rates due to deferred tax writebacks.
RHB Research said most companies acknowledged that dry weather was experienced in their Malaysian and Indonesian estates in 4Q and that this weather is still prevalent, resulting in a reduction in their production forecasts/targets for the year.
However, as a result of lower fertiliser costs, most companies reported lower CPO production costs during the quarter.
For companies with downstream operations like IOI Corp, Sime, KLK and FGV, most reported margins improvement and profitability on the back of higher sales volumes.
“We maintain our OVERWEIGHT stance on the sector. We believe this is still the early stage of a bull market, as funds have just started to flow into the palm oil sector and valuations remain inexpensive. Our Top Picks in Malaysia include IOI Corp, SOP and Jaya Tiasa,” it said.