PublicInvest maintains 'Neutral' on plantations on lack re-rating catalysts

The company told Bursa Malaysia yesterday that revenue for the current quarter improved year-on-year (y-o-y), mainly due to higher fresh fruit bunch (FFB) production from Indonesia, apart from the higher sales of refined palm products.

KUALA LUMPUR: PublicInvest research has maintained its neutral outlook for the plantations sector following the release of the Malaysian Palm Oil Board's (MPOB) projection for a strong price recovery in 2019.

The research house said it sees no re-rating catalysts in the near term.

To re-cap, the MPOB said palm oil prices are expected to recovery based on higher biodiesel mandata in Malaysian and Indoensia, the weaker ringgit and the potential occurence of a El Nino event.

It forecast the CPO price average at RM2,500/mt in 2019 versus PublicInvest's estimates of RM2,300/mt.

MPOB predicts a sharp fall in inventories by the year-end to 2.5 million metric tonnes, a 22% drop from the historic high level of 3.22 million metric tonnes in 2018.

It projects palm oil production to rise 4.1% from 19.5 million metric tonnes to 20.3 million metric tonnes, following a drop of 2% last year.

Exports are expected to rise 4.3% from 16.49 million metric tonnes to 17.2 million metric tonnes.

"Palm oil export value is expected to surge from RM67.7bn to RM75bn on the back of stronger CPO prices," it said.

PublicInvest said MPOB's projection shows exports growing at a similar pace with palm oil production while inventory levels are expected to fall by 720,000 metric tonnes or 22%. 

This indicates a surge in domestic consumption or the B10 biodiesel mandate is the main contributor to the sharp fall in inventories.

"Primary Industries Minister Teresa Kok said the government intends to increase the amount of palm oil in its biodiesel blend to 20% by next year," noted the research house.

Meanwhile, PublicInvest also noted that Indonesia is seeing more aggressive biodiesel consumption.