PETALING JAYA: The potential impact of the Covid-19 pandemic, coupled with the fall in crude oil prices resulted in HLIB Research downgrading the sector to “neutral” from “overweight”, and revising its crude palm oil (CPO) price assumptions downwards.
The research house, in a note, said the near-term tight supply of CPO will no longer be able to mitigate the impact of these factors on CPO prices.
It lowered its average CPO price assumptions by RM150 and RM200 per tonne to RM2,350 per tonne in 2020 and RM2,400 per tonne in 2021 to reflect its less sanguine view on the demand outlook for palm oil.
The research house noted that the Covid-19 pandemic will likely have a negative impact on palm oil demand and price, especially if it persists further.
The CPO spot price has weakened by more than 25% (from a high of RM3,111 per tonne) since January 2020.
“While we believe the near-term prices will be supported by palm oil’s tight near-term supply, the latter could no longer mitigate the potential impact arising from the Covid-19 pandemic and crude oil price slump, ” it said.
In addition, it said, the deterioration in the crude palm oil-gas oil spread following the drastic decline in crude oil prices, raised questions on viability of existing biodiesel mandates.
“While it seems unlikely for the Indonesian government to revise its biodiesel mandate (at least for now, given its plan to increase palm oil export levies to support expansion of its palm biodiesel programme), the risk of such revision (in other countries) will still cap the upside potential for prices of palm oil and other vegetable oils, ” it said in the report yesterday.
The research house downgraded its ratings on CB Industrial Product (CBIP) and Genting Plantations from “buy” to “hold”, and kept ratings for other plantation counters unchanged.
As for the sector’s recent fourth quarter (Q4) results, it said two out of nine companies (FGV and TSH Resources) had missed estimates, while four companies (CBIP, Hap Seng Plantations, IJM Plantations and Sime Darby Plantations) reported better-than-expected results.
Genting Plantations, IOI Corp, and KLK, meanwhile, had met expectations.
Other than Sime Darby Plantations and KLK, it noted that all other companies had reported better year-on-year performances, as lower fresh fruit bunches (FFB) output was fully offset by higher realised CPO prices.
For KLK, the research house noted that higher CPO prices and improved core performances from the manufacturing segment were fully negated by an 11.5% decline in FFB production, lower property earnings and associate contributions, while Sime Darby Plantations saw higher realised CPO prices neutralised by lower FFB production and weaker contribution from its downstream segment.
Did you find this article insightful?