PETALING JAYA: Plantation heavyweights saw their share price jump as crude palm oil (CPO) prices continued to rally, and as investors bet on improved earnings from the companies in the coming quarters.
Also contributing to the rise in their share price was the latest data on inventory, which showed palm oil stocks dipping to lower-than-expected levels as production slowed.
CPO prices have been on an overall downward trend for close to two years, hitting RM1,937 per tonne in July – the lowest since August 2015.
Over the past month, however, CPO prices have surged, climbing to a two-year high of RM2,600 per tonne yesterday.
The Bursa Malaysia Plantation Index reflected this trend, showing a 6.5% increase in the past month, outperforming the broader market which was up 3% during the same period.
While investors were anticipating higher earnings from plantation players, analysts remained cautious, mostly maintaining their “neutral” stance on the sector ahead of the corporate results season.
Among the plantation stocks that enjoyed an increase yesterday was KLK, which was up 16 sen to close at RM22.36.
Sime Darby Plantation closed five sen higher at RM5.03, while IOI Corp rose four sen to RM4.44.
Boustead Plantations Bhd, meanwhile, ended one sen or 1.6% higher at 63 sen.
According to CGS-CIMB Research, the recent rally in CPO prices has been driven by concerns over a supply shortfall due to slower output growth and rising biodiesel demand.
This, and expectations of export taxes being implemented in January, could also boost exports in the near term, it said in a report yesterday.
The research house, which has maintained its “neutral” stance on the sector, expected CPO prices to trade in the range of RM2,400 to RM2,600 per tonne in November.
Malaysia’s palm oil stockpile, meanwhile, fell 4% month-on-month (m-o-m) and 5% year-on-year (y-o-y) to 2.35 million tonnes as at the end of last month.
This came in 5% below CGS-CIMB Research’s projection of 2.48 million tonnes, and 7% and 8% lower than the Reuters and Bloomberg forecasts of 2.52 million tonnes and 2.54 million tonnes, respectively.
It was also the first m-o-m decline in stocks for the month of October since 2011.
The research house said the lower-than-expected stockpile against its forecast was primarily due to lower-than-expected production during the period.
“This is positive for CPO prices as it reveals tighter-than-expected palm oil supply conditions at producing nations, ” it said.
The country’s CPO production in October was lower at 1.8 million tonnes, down 2.5% m-o-m and 8.6% y-o-y.
In Peninsular Malaysia, Sabah and Sarawak, CPO production fell by 12.2%, 6.4% and 2.9% m-o-m to 887,000,476,000 and 432,900 tonnes, respectively.
Affin Hwang Capital Research expected production to slow down further in the next few months, given the monsoon season.
It forecast the country’s CPO production for the year to rebound to about 20 million tonnes from 19.5 million tonnes in 2018.
As for the palm oil inventory, the research house said stocks could fall further and boost CPO prices if demand for the country’s palm oil products remains strong.
“Overall, we remain optimistic on the palm oil demand-supply dynamics.
“We expect the global palm oil inventory to gradually decline y-o-y from 2020 onwards with higher exports and higher consumption of palm oil products, ” it said, while keeping its “neutral” rating on the sector.
The research house has “buy” calls on TA ANN HOLDINGS BHD, IJM PLANTATIONS BHD and HAP SENG PLANTATIONS HOLDINGS Bhd; and “hold” calls on FGV Holdings, IOI Corp, Sime Darby Plantation, Genting Plantations Bhd and KLK.
Although it has maintained its “neutral” call on the sector, Kenanga Research expected a stronger year ahead for plantation companies.
“All in, after weighing the potential positives and negatives, we believe 2020 should spell out a better year for planters, ” it said.
Its preferred picks for the sector are KLK and Hap Seng Plantations.
The research house expected demand to outstrip supply, leading to lower stocks of 2.23 million tonnes in November.
It also forecast that CPO prices would remain range-bound, between RM2,300 and RM2,500 per tonne for the rest of the quarter, supported by healthy soybean oil-crude palm oil premium, strong demand amid slowing production, and the weaker ringgit.