Affin Hwang maintains Neutral on plantations, Ta Ann remains top pick

Palm oil may rise to RM2,001 per tonne, as suggested by a projection analysis, said Wang Tao, a Reuters market analyst for commodities and energy technicals.

KUALA LUMPUR: Affin Hwang Capital research maintained its neutral rating on the plantation sector with a recommendation for investors to "stay selective".

The research house has "buy" ratings on Ta Ann, IJM Plantations, Hap Seng Plantations and WTK, "hold" ratings on FGV, IOI Corp, SD Plantation, Genting Plantations and KL Kepong, and a "sell" rating on Jaya Tiasa. 

"For plantation-sector exposure, we still prefer Ta Ann for its plantation earnings prospects given the rising mature plantation area and improving FFB yields and CPO oil extraction rates," it said in a note. 

Affin Hwang maintained its CPO average selling price assumption at RM2,200-2,400/MT for 2019-2020E, while noting that CPO prices weakened 3.6% m-o-m to RM1,946.50/MT in May due in part to the ample supply of other edible oils in the market, weak market sentiment and the ongoing trade tensions.

"The key focus for the next few weeks is this year’s supply of corn and soybean crops in the USA. 

"Production could potentially be affected by the wet weather and planting progress in major US growing areas coupled with the risk of below-average yields caused by the late plantings," it said.

Malaysia’s palm-oil inventories in May declined for the third straight month, down by about 282,300 MT or 10.3% month-or-month to 2.45m MT, the lowest since August 2018

According to Affin Hwang, this was owing to higher exports and consumption of the commodity, with palm oil exports growing 3.5% month-on-month to 1.71 million MT due to rising demand from India, Iran, the US and the EU.

"We still expect global palm oil inventory to gradually decline with higher exports and higher consumption of palm-oil products going forward, supported by the energy market and food industries, in our view," it said.

Malaysia's crude palm oil (CPO) production in May rose by a marginal 1.3% month-on-month to 1.67 million MT due to higher production from Peninsular and Sarawak.

CPO production in Peninsular and Sarawak increased by 1.2% and 4.4% m-o-m to 935,900 MT and 323,800 MT respectively, while production in Sabah declined by 0.6% m-o-m to 411,800 MT

"Overall, Malaysia’s CPO production for 5M19 was up by 9.1% yoy to 8.3m MT, underpinned by improving FFB yields and CPO oil extraction rates," said the research house.

It expects 2019 CPO production to rebound to about 20 million MT from 19.5 million MT in 2018.

For June, the research house believes production will likely be affected by the Hari Raya festivities.


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