11/01/2023 (New Straits Times), Kuala Lumpur - Malaysia's palm oil output beat Kenanga Research's expectations in December as the sector offers highly defensive qualities, from resilient food and fuel driven demand to asset-rich net traded assets (NTA).

The firm said Malaysia's December palm oil output of 1.62 million tonnes had exceeded its expectation of 1.51 million tonnes but was below market's 1.72 million tonnes.

"Inventory thus came in 8 per cent  below consensus but 12 per cent above our estimate on exports of 1.468 million tonnes, just slightly below our and consensus estimates.

"Altogether, December 2022 production was a tad stronger than historical trend, but exports and end-inventory were in line with historical averages," it said.

Meanwhile, Kenanga Research said edible oil prices hadceased after middle of 2022 on higher supply but demand, which had been subdued by Covid since 2020, was likely to recover in 2023 as well.

The firm said inventory levels were thus expected to stay range-bound for much of 2023.

"Therefore, palm oil prices should stay relatively firm, and we maintain the 2023- 2024 crude palm oil (CPO) price forecast at RM3,800-3,500 per mt," it said.

Moving forward, Kenanga Research said rising production cost was a concern as labour, fertiliser and energy costs had increased.

However, it said improving workers availability in Malaysia should mitigate some of the unit cost inflation as better 2023-2024 fresh fruit bunches (FFB) output was anticipated.

"All in all, we expect margins to stay subdued with the possibility of upside capped somewhat.

"Due to price differential outside Malaysia, our calendar year 2022 (CY22) and CY23 average CPO prices are kept at RM4,500 per mt and RM3,800 per  mt, respectively, along with our 'Neutral' sector recommendation.

"The sector enjoys defensive earnings and NTA but cost inflation amid softer CPO prices meant margin upside is somewhat capped."

On stock selections, Kuala Lumpur Kepong Bhd is Kenanga Research's large integrated pick, TSH Resources Bhd for visible long-term expansion and for income, Hap Seng Plantations Holdings Bhd.

https://www.nst.com.my/business/2023/01/869169/malaysias-december-palm-oil-output-beats-expectations