Affin Hwang Capital Research retains Neutral on plantations


The research house expects Malaysia’s 2020 CPO production to be lower, potentially down by c.1-3% YoY (2019: 19.9 million tonnes), due to the lagged effect of the dry weather in 2019, lagged effect of lower fertilizer application and minimal new plantings of oil palm.

KUALA LUMPUR: Affin Hwang Capital Research is maintaining its neutral rating on the plantation sector, with Ta Ann as its top pick.

It said on Monday, its other buy ratings included Jaya Tiasa, IJM Plantations and Hap Seng Plantations while it has hold ratings on KL Kepong, IOI Corp and Genting Plantations; and sell ratings on FGV and Sime Darby Plantation.

“For sector exposure (small-mid cap), we prefer Ta Ann as they remained as one of the profitable upstream companies during a depressed crude palm oil (CPO) environment coupled with its undemanding valuation, ” it said.

Affin Hwang Capital Research said Malaysia’s palm-oil inventory in June 2020 declined by 6.3% month-on-month (MoM) to 1.9 million tonnes, as total consumption exceeded production given the strong exports due to restocking and reopening of the hotels/restaurants/catering (Horeca) division.

“We expect stock levels to rise in 2H20 as demand from the food industry and energy sectors remains affected by the Covid-19 pandemic and volatile crude oil prices, thus impacting the CPO prices, ” it said.

Malaysia’s CPO production in June was at its highest level since October 2018 at 1.89 million tonnes (+14.2% MoM/ +24.8% year-on-year) as production was higher in Peninsular Malaysia and Sarawak, up 24.5% and 7.2% MoM, respectively to 1.08 million tonnes and 353,500 tonnes, but partially offset by lower production in Sabah.

CPO production in Sabah declined by 0.5% MoM to 449,600 tonnes. For 6M20, Malaysia’s CPO production contracted 7.5% YoY to 9.05 million tonnes, mainly due to the weaker production in 1Q20.

“We believe production will remain strong in 3Q and peak in October/November as the lagged effect of dry weather (from 2019) normalises.

“Nevertheless, we expect Malaysia’s 2020 CPO production to be lower, potentially down by c.1-3% YoY (2019: 19.9 million tonnes), due to the lagged effect of the dry weather in 2019, lagged effect of lower fertilizer application and minimal new plantings of oil palm.

Malaysia’s palm-oil exports in June improved by another 24.9% MoM to 1.71 million tonnes, driven by key buyers China, India, Pakistan and Turkey.

“We believe the sharp increase in demand for Malaysia’s palm-oil products in June20 was due to some countries restocking their edible oils inventories as their lockdowns eased and the re-opening of their Horeca division, coupled with Malaysia reducing its export duty rate on CPO to zero for June until year-end (from 4.5% export duty rate in May).

“After restocking activities are completed, we believe demand in 2H20 will be impacted by less gatherings/events, higher unemployment levels and lower disposable income, which could potentially lead to lower YoY consumption of global edible oils and thus, reducing Malaysia’s palm-oil exports. Malaysia’s total exports in 6M20 declined by 17% YoY to 7.8 million tonnes, ” it said.

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