PPB Oil Palms Bhd remains Mayban Securities' favourite pick due to its undemanding valuations and attractive dividend yields at 4.8%.
The research house maintained a fair value of RM3.70 for the mid-sized plantation stock and reiterated its overweight stance on the plantation sector.
PPB Oil Palms share price closed unchanged at RM3.30 on Bursa Malaysia yesterday with 359,300 shares traded.
Mayban Securities, in its recent notes, said PPB Oil Palms' recent land acquisitions were in line with the group's aspiration to have more than 100,000ha of plantation land in Central Kalimantan (Indonesia) in five years.
PPB Oil Palms has so far acquired a 65% stake in PT Karunia Kencana Permai Sejati, representing 19,400ha; a 95% stake in PT Bumi Sawit Kencana (11,050ha); and the latest, a 60% stake in PT Mentaya Sawit Mas (15,500ha).
The research unit pointed out that thee acquisitions were likely to relate to the 45,000ha of land that the group indicated earlier that it was in the final stages of negotiation.
“Including these new acquisitions, PPB Oil Palms' total plantation land bank in Indonesia will increase to about 125,000ha,” said Mayban Securities.
It said the land bank would take between three and six years to be fully developed.
“As such, contributions from these plantations are not expected to flow in for at least another three to four years as oil palms take about three years before they could be harvested.”
As a pure plantation player, a Singapore-based research house said, PPB Oil Palms was highly subject to volatility in crude palm oil (CPO) prices.
Commodity dealers, however, expect the CPO spot price to trend higher and return to the RM1,400 a tonne level this week, after falling to a 15-month low of RM1,347 last week.
One analyst said: “This is good news to pure plantation players like PPB Oil Palms, because the bulk of its earnings depends on CPO prices.”
At the same time, the Malaysian Palm Oil Board (MPOB) reported that the palm oil stockpile for December last year stood at a preliminary 1.49 million tonnes – the highest level in 46 months.
SBB Securities, in its recent notes, said the MPOB's news could cause some jitters on MDEX in the short run, and to affect palm oil futures prices.
“However, we believe the impact would unlikely be lasting,” it said adding that global demand for edible oil was still robust.
SBB Securities said stockpiles were still replenishing after two consecutive years of supply deficits.
“Investors will have to factor in higher inventory when unfavourable weather and freight availability during times of concern over terrorists attack become issues,” it added.
Despite recent weaknesses, the research house continues to envisage higher average prices for CPO this year.
“Our initial assessment implies an 8.7% rise in the average CPO price to RM1,790 a tonne, from RM1,647.38 last year.