PETALING JAYA: MIDF Research has lowered its average crude palm oil (CPO) price forecast to RM2,400 per tonne for this year.
This was after factoring in lower soybean oil price and higher palm oil inventory, the research unit said in its latest report.
However, MIDF Research expects CPO price to improve to RM2,430 per tonne in 2019.
It has downgraded the plantation sector to a “neutral” as the CPO price is expected to have limited upside at below RM2,500 per tonne in the second half of 2018 due to higher stocks level for palm oil and soybean oil.
MIDF Research has also reduced the earnings estimates for all plantation stocks under its coverage.
“Accordingly, the target prices for all planters have been reduced, except for PPB Bhd,” it said.
It noted that PPB valuation was based on price-to-book which is not affected by lower earnings estimates.
The research unit also has “buy” calls on Kuala Lumpur Kepong Bhd (KLK) and Genting Plantations Bhd .
“We like KLK for the improved outlook in its manufacturing earnings due to low crude palm kernel oil, earnings resiliency and decent dividend yield of 2.6%.”
For Genting Plantations, MIDF Research expects the company’s fresh fruit bunches growth of 13% year-on-year to be the strongest among the planters under its coverage.
This is due to the contribution from recently acquired estates of 12,893ha and 5,000ha coming to maturity in Indonesia, it added.
Ahead of the Malaysian Palm Oil Board’s June statistics release next week, MIDF Research expects palm oil inventory for June to continue with its downtrend.
Local palm oil inventory has declined for five consecutive months up to end-May 2018.
However, the downtrend should reverse from July onwards as “production is expected to rise to the level which exceeds total demand.
“Hence, inventory should stay above two million tonnes throughout the second half of 2018 and keep the CPO price upside limited,” it said.