MARKET DEVELOPMENT
Planters in For Better Earnings on Higher Palm Oil Price
Planters in For Better Earnings on Higher Palm Oil Price
14/08/2017 (The Star) - Most planters’ second quarter results (Q2 2017) to be released this week are expected to record further improvement, bouyed by higher crude palm oil (CPO) production and prices.
According to analysts, plantation companies will likely deliver stronger earnings year-on-year (y-o-y), given a 6% increase in CPO price to RM2,747 per tonne and 12% rise to 4.72mil tonnes in production after the severe El-Nino drought episode.
However, quarter-on-quarter (q-o-q) earnings for planters should stay flat-to-higher on seasonally improved fresh fruit bunches (FFB) production albeit softer CPO prices.
Kenanga Research, in its latest report, said planters with high plantations exposure in Peninsular Malaysia such as Sime Darby Bhd, IOI Corp Bhd, Kuala Lumpur Kepong Bhd (KLK), Felda Global Ventures Holdings Bhd (FGV) and United Malacca Bhd could see higher-than-average production growth trends.
CIMB Research, meanwhile, has projected plantation companies to report decent Q2 2017 results.
“We expect Malaysian planters to post marginally higher q-o-q earnings in Q2 2017 as the 18% q-o-q rise in CPO output should offset the 13% q-o-q drop in CPO price and 35% q-o-q drop in palm kernel price,” it said in its latest agribusiness report.
Its preferred plantation picks are Sime Darby Bhd in Malaysia, Astra Agro Lestari in Indonesia and First Resources Ltd in Singapore.
For Sime Darby, CIMB Research expected its share price to re-rate on the back of higher commodity prices and on its plans to demerge and list separately its plantation and property divisions.
The research unit, however, is neutral on the plantation sector, given the current CPO prices may not be sustainable in the second half of 2017.
CIMB also expected CPO to trade at RM2,400-RM2,700 per tonne range this month.
The key supportive factors for prices continue to be the lower stockpiles at consuming countries and higher biodiesel mandates in Indonesia. Bearish factors include stronger palm oil output and competition from soybean oil.
Despite seeing weaker Q2 2017 average CPO prices to RM2,747 per tonne from RM3,130 per tonne in Q1 2017, Public Investment Bank (PIVB) Research expected most planters to deliver another commendable quarterly results this month.
This is led by a stronger pick-up in FFB production following the waning effect of El Nino.
“Our studies showed that almost all the plantation companies registered double-digit FFB production growth in Q2 2017.
“TSH Resources Bhd posted the highest FFB production growth, up 51.5% y-o-y followed by Genting Plantations (+38.3%) and KLK (+38.3%),” the research unit added.
Meanwhile, CPO production is forecast to be on the rise this year. The US Department of Agriculture said favourable conditions were expected to boost palm oil production in Indonesia and Malaysia.
It estimated that production in Malaysia would expand to 21 million tonnes in 2017-2018 versus 19.2 million tonnes in 2016-2017.
Indonesia’s CPO production is forecast to be at 36 million tonnes in 2017-2018, an increase of 5.9% y-o-y.
Hong Leong Investment Bank (HLIB) Research pointed out that higher CPO prices and FFB production would drive up planters’ earnings y-o-y, with the exception of FGV and Hap Seng Plantations, which reported lower FFB production.
Despite the recent recovery in palm oil prices, the recent strength in CPO prices would unlikely sustain into 2018 due to the absence of apparent demand growth catalyst and supply concerns, the research unit added .
For the plantation sector exposure, its top picks are Sime Darby and United Malacca.
“We continue to see value in Sime Darby, backed by its plan to unlock value via the separate listing of property and plantation arms by end-2017.”
HLIB also picked United Malacca for its strong FFB output growth prospects, underpinned by young tree age profile, healthy balance sheet and decent valuations among its peers.
According to analysts, plantation companies will likely deliver stronger earnings year-on-year (y-o-y), given a 6% increase in CPO price to RM2,747 per tonne and 12% rise to 4.72mil tonnes in production after the severe El-Nino drought episode.
However, quarter-on-quarter (q-o-q) earnings for planters should stay flat-to-higher on seasonally improved fresh fruit bunches (FFB) production albeit softer CPO prices.
Kenanga Research, in its latest report, said planters with high plantations exposure in Peninsular Malaysia such as Sime Darby Bhd, IOI Corp Bhd, Kuala Lumpur Kepong Bhd (KLK), Felda Global Ventures Holdings Bhd (FGV) and United Malacca Bhd could see higher-than-average production growth trends.
CIMB Research, meanwhile, has projected plantation companies to report decent Q2 2017 results.
“We expect Malaysian planters to post marginally higher q-o-q earnings in Q2 2017 as the 18% q-o-q rise in CPO output should offset the 13% q-o-q drop in CPO price and 35% q-o-q drop in palm kernel price,” it said in its latest agribusiness report.
Its preferred plantation picks are Sime Darby Bhd in Malaysia, Astra Agro Lestari in Indonesia and First Resources Ltd in Singapore.
For Sime Darby, CIMB Research expected its share price to re-rate on the back of higher commodity prices and on its plans to demerge and list separately its plantation and property divisions.
The research unit, however, is neutral on the plantation sector, given the current CPO prices may not be sustainable in the second half of 2017.
CIMB also expected CPO to trade at RM2,400-RM2,700 per tonne range this month.
The key supportive factors for prices continue to be the lower stockpiles at consuming countries and higher biodiesel mandates in Indonesia. Bearish factors include stronger palm oil output and competition from soybean oil.
Despite seeing weaker Q2 2017 average CPO prices to RM2,747 per tonne from RM3,130 per tonne in Q1 2017, Public Investment Bank (PIVB) Research expected most planters to deliver another commendable quarterly results this month.
This is led by a stronger pick-up in FFB production following the waning effect of El Nino.
“Our studies showed that almost all the plantation companies registered double-digit FFB production growth in Q2 2017.
“TSH Resources Bhd posted the highest FFB production growth, up 51.5% y-o-y followed by Genting Plantations (+38.3%) and KLK (+38.3%),” the research unit added.
Meanwhile, CPO production is forecast to be on the rise this year. The US Department of Agriculture said favourable conditions were expected to boost palm oil production in Indonesia and Malaysia.
It estimated that production in Malaysia would expand to 21 million tonnes in 2017-2018 versus 19.2 million tonnes in 2016-2017.
Indonesia’s CPO production is forecast to be at 36 million tonnes in 2017-2018, an increase of 5.9% y-o-y.
Hong Leong Investment Bank (HLIB) Research pointed out that higher CPO prices and FFB production would drive up planters’ earnings y-o-y, with the exception of FGV and Hap Seng Plantations, which reported lower FFB production.
Despite the recent recovery in palm oil prices, the recent strength in CPO prices would unlikely sustain into 2018 due to the absence of apparent demand growth catalyst and supply concerns, the research unit added .
For the plantation sector exposure, its top picks are Sime Darby and United Malacca.
“We continue to see value in Sime Darby, backed by its plan to unlock value via the separate listing of property and plantation arms by end-2017.”
HLIB also picked United Malacca for its strong FFB output growth prospects, underpinned by young tree age profile, healthy balance sheet and decent valuations among its peers.