AMRESEARCH has maintained its earnings forecast and “hold'' recommendation on PPB Oil Palms Bhd despite the tendency for the company to be affected by the downtrend in crude palm oil (CPO) prices due to its pure plantation exposure.
The research house said it does not believe that the stock warranted a “sell” due to its attractive dividend payouts.
It said based on a recent company visit, the PPB Oil Palms management had indicated that the company had a policy of paying dividends of up to 50% of net profit.
The company has been giving a gross payout ratio of 53% in the past two years. An analyst with AmResearch said: “Based on our net profit forecast of RM155.9mil this year and a payout ratio of 50%, the gross dividend per share will roughly be 18 sen.”
Meanwhile, the PPB Oil Palms management is not particularly bearish on the prospects of CPO prices. “They believe prices should sustain above RM1,400 per tonne for the rest of the year,” the analyst said.
He said although the management did not have a specific price target next year, it believed that prices would not plunge to the average low of RM705 per tonne seen in 2001.
The management view, he said, was premised on the strong likelihood that India would step up its palm oil purchase in the coming months as the drought had adversely affected the country’s harvest of edible oilseeds.
Hence, the pick-up in Indian demand should be enough to absorb the seasonally higher local CPO production envisaged during the second half of this year, he added.
The management also thinks that even if the US records an increase in soybean crop this month, CPO prices should not be significantly affected as the higher soybean production would only be making up for the shortfalls in production from the previous two months.
The analyst said PPB Oil Palms had sold forward almost all its CPO production with a balance of 10% to 20% of production to be sold during the fourth quarter. The average selling prices achieved for the first half of this year and the third quarter were RM2,000 and RM1,800 per tonne respectively.
“If CPO prices hover above RM1,400 per tonne in the fourth quarter, then the management expects the average selling price to range between RM1,600 and RM1,700 per tonne this year, which is within AmResearch’s expectations of RM1,650 per tonne.”
PPB Oil Palms has forecast a fresh fruit bunches production of 1.27 million tonnes this year, a 10.4% growth year-on-year by an average yield of 20 tonnes per hectare and between 9% and 11% increase in mature hectarage of 5,000ha to 6,000ha.
The group’s total capex including plantation expenditure is estimated at RM165mil this year and RM104mil next year.