Malaysian palm oil futures fell in evening trade on Thursday, reversing earlier gains as weaker demand weighed on prices and traders took profits ahead of official data due next week.
KUALA LUMPUR: While sentiment has generally improved, plantation stock prices have weakened again after the spurts in March and April, according to Affin Hwang Capital.
“We maintain our sector ‘neutral’ rating and stock ratings. IOI Corp Bhd
looks more attractive, but the Roundtable on Sustainable Palm Oil (RSPO) issue is an overhang. Felda Global Ventures Holdings Bhd (FGV) remains a ‘sell’ until management can put the group on firmer financial footing, as is Genting Plantations,” it said.
The research house said for the January 2015 to May 2016 period, FGV, IOI and SIME posted negative absolute and relative returns.
In addition to firmer CPO prices, potential key stock price drivers would be a strong recovery in oil yields, firmer economic growth boosting vegetable demand, and lower oilseed production in the 2016/17 season.
Affin said all plantation companies under its coverage in the first quarter posted lower profits (a pretax loss in the case of FGV) year-on-year (yoy) and quarter-on-quarter (qoq).
“Fresh fruit bunch production was sharply lower due to the negative impact of the strong El Nino event that started in June/July 2015, thereby leading to lower sales volumes and a higher CPO cost of production. On average, plantation earnings for the companies declined by 71.2% qoq and 35.8% yoy,” it said, adding that for IOI and Sime Darby it had used operating profit due to unavailability of data while the rest are pre-tax profit in aggregating plantation profit performance.
Affin said year-to-date first quarter 2016 results were below expectations with the exception of IOI.
It added that it has trimmed its 2016 estimate core net profit by 5.3% (GENP) to 32.0% (FGV). Yields are expected to improve in the coming quarters as El Nino subsides, while its CPO average selling price assumption was unchanged at RM2,400 per tonne. It has lowered its 12-month target prices by 3.1% (KLK) to 10.2% (HAPL),
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