KUALA LUMPUR: Affin Hwang Capital Research expects CPO production to continue to improve in 2H18, but at a lower growth rate.
The research house cut its CPO price assumption for 2018-2020 to RM2,350-RM2,500/MT from RM2,500-RM2,600/MT previously.
It said on Friday that the downtrend in CPO prices since end-2017 was negative for palm oil planters, but expects prices to recover, underpinned by demand for palm oil products in the food and energy industries, progress in biodiesel adoption globally and rising chances for El Nino to make an appearance.
Following the changes in companies’ earnings and target prices, it downgraded IJM Plantation and Hap Seng Plantation to a Sell, and FGV to a Hold.
It maintained it Neutral rating on the sector and said its preferred sector exposure is Genting Plantation.
“We like Genting Plantation as we expect higher FFB and CPO production coupled with an increase in contribution from the downstream plantation segment to drive earnings growth going forward,” it said.
It said the key downside risks to its Neutral rating on the plantation sector and stock calls include weaker-than-expected demand and higher-than expected production lowering prices of vegetable oils; a decline in CPO production that is not offset by higher CPO selling prices; delays in the implementation of biodiesel mandates in Indonesia and Malaysia; and unfavourable policies and taxes.
Key upside risks, on the other hand, include a strong rebound in the global economy as well as demand and prices of vegetable oils.
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