KUALA LUMPUR: Maybank Investment Bank (IB) Research has revised downwards its crude palm oil (CPO) average selling price (ASP) and maintained a “neutral” call on the plantations sector.
“We revise down our 2015/16/17 CPO ASP forecasts by -13/-8/-8% to RM2,100, RM2,300, RM2,400 per tonne respectively (from RM2,400/2,500/2,600 per tonne). For our US dollar forecasts, the revision was steeper at -19/-17/-16% incorporating a weaker ringgit of 3.80-3.90 (from 3.50).
“Incorporating the lower CPO ASP and FRS16, we cut 2015 - 17 net profit forecasts of companies under our coverage by -4-60% (except Ta Ann, with 2015’s earnings lifted by timber earnings),” it said on Wednesday.
Given the near term headwinds, Maybank Research maintained its “neutral” call on the sector. But it said long term investors should look to a better 2016 as it believed there was limited downside to CPO ASP as commodity prices in US dollar are near post-GFC lows.
Indonesia’s mandated biodiesel B15 will boost demand and it continued to pin hope on the strengthening El Nino to boost prices in 2016. Meanwhile, focus on companies with good long term organic growth, and take shelter in asset buffer.
The research house said while three months CPO price had corrected by 12% year-to-date (Aug 28: RM1,991 a tonne) in Ringgit terms, the correction was far steeper in US dollar terms which was down -27% to US$474 per tonne over the same period.
The correction was lesser for soyoil (-13%) and rapeseed oil (-8%), which resulted in a widening of price gap of late. A weakened Ringgit and Rupiah have provided some relief for planters in the region.
As the current El Nino (with indicators resembling the strong 1997/98 El Nino) has failed to live up to expectations with no immediate impact on FFB production, the market has largely ignored this weather risk at the moment but focused on several headwinds, namely record US soybean planting amidst ample global soybean supply, relatively high palm oil stockpile and low crude oil prices discouraging discretionary biodiesel demand.
“These headwinds mean that CPO price will remain weak over the remaining of 2015,” said the research house.