Maybank IB Research sees better year ahead for plantations


  • Analyst Reports
  • Wednesday, 23 Oct 2019

“Valuations of small-mid caps are low on an EV/planted ha basis and present an accumulation opportunity. Maintain Neutral on the sector. We have BUYs on Ta Ann and Sarawak Oil Palms," Maybank IB Research says.

KUALA LUMPUR: Maybank Investment Bank Research sees stronger crude palm oil (CPO) in 2020 based on anticipated tightening of palm oil supply in 2020-2021 on biological tree stress and slower growth in mature oil palm area (due to lack of new plantings in Indonesia and Malaysia since 2015).

It said on Wednesday its CPO average selling price (ASP) forecast for 2020 is unchanged at RM2,300 a tonne (2019: RM2,100).

“The bombed-out small and medium capitalised (SMID) cap stocks are worth accumulating. The adjusted EV/ha of planters (Fig.12), especially the SMID caps like Ta Ann (RM22,000/ha) and Sarawak Oil Palms (RM14,000/ha), are at or below replacement costs, and also trade near or below GFC trough PBV valuation, ” it said.

To recap, Maybank Research said against 3Q19’s still low spot CPO price of RM2,018/t, companies with relatively higher cost of production (such as TH Plantations and Boutead Plantations) will likely remain in the red.

“However, we think investors should look to a stronger CPO price recovery in 2020, ” it said.

As for 3Q 2019, it expects Malaysian planters to report flattish-to-lower YoY core earnings as output recovery is offset by lower palm product prices.

However, selected Sarawak-based planters such as Ta Ann and Sarawak Oil Palms are likely to report better QoQ core earnings on stronger output. Integrated players will fare relatively better, benefiting from low raw material costs.

“Valuations of small-mid caps are low on an EV/planted ha basis and present an accumulation opportunity. Maintain Neutral on the sector. We have BUYs on Ta Ann and Sarawak Oil Palms.

“Thanks to the zero CPO export duty in 3Q19 for Malaysia and Indonesia, the Malaysian refiners continued to enjoy a level-playing field vis-à-vis Indonesian refiners.

“The utilisation rate of Malaysian refining capacity rose to its highest level since 2011 at 75% (2Q19: 71%, 3Q18: 70%) in 3Q19.

“With rising CPO price trend in 3Q19, we expect refiners to enjoy mark-to-market inventory gains, which in turn will help lift overall refining margins.

“Likewise, we also expect the oleochemical players (such as IOI and KLK) to enjoy another quarter of decent margins in 3Q19 evidenced by the high average industry plant utilisation rate of 105% (2Q19: 94%, 3Q18: 102%).

“Oleochemical players are likely to continue to benefit from the still low raw material costs, ” Maybank IB Research said.

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Crude palm oil , Ta Ann , Sarawak Oil Palms

   

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