In its regional sector update today, RHB said Malaysia’s July palm oil stocks rose 0.7% month-on-month (m-o-m) to 1.73 million tonnes as output improved 11.2% m-o-m.
“We expect a gradual improvement in palm oil stocks in the coming months as the peak output season continues – partially offset by restocking activities.
“We maintained the ‘neutral’ sector call with a tactical positive trading strategy. We make no changes to our RM3,900 per tonne crude palm oil (CPO) price assumption for 2023 and 2024,” it said.
RHB stated that it continues to favour Malaysian players over regional ones due to Indonesia’s tax structure and currency appreciation, which result in less competitive earnings compared to Malaysia.
Its top picks include Kuala Lumpur Kepong (KLK), IOI Group, Sarawak Oil Palms (SOP) and Ta Ann (TAH). As for regional players, it prefers integrated exporters like Wilmar International and Golden Agri.
On the other hand, Kenanga Research emphasised that the plantation sector presents substantial value, stemming from its long-term exposure to robust palm oil demand driven by the food and biofuel industries, as well as the appreciating worth of its land holdings.
This is further accentuated by the scarcity of new regional oil palm development due to limited land availability and regulatory constraints.
It said while CPO selling prices could be volatile, well-managed plantations could offer good returns and cash flow.
“We like KLK for its strong track record, regional upstream operations and growing downstream operations, PPB Group for Wilmar’s exposure to China and India along with its own exposure to Southeast Asia’s growing consumer essential segment and Hap Seng Plantations Holdings which offers upstream exposure with cash surplus to sustain a decent dividend yield,” it said.
Kenanga Research also said while it expects CPO prices to be maintained at RM3,700 per tonne for 2023-2024, the ongoing supply risk premium commanded by CPO may require a slightly firmer (3%-5%) price adjustment.
Another research firm, Public Investment Bank, has forecast a full-year CPO price of RM3,800 per tonne.
In view of the weak CPO price performance and lacklustre fresh fruit bunches production growth, it expects to see another set of poor plantation results for Q2 2023.
“Meanwhile, the oversupply of petrochemicals caused by the influx of new chemical factories in the US and China is expected to negatively impact the oleochemical business,” it added.