PETALING JAYA: The target price for crude palm oil (CPO) has been revised upward to RM2,500 per tonne for this year and RM2,600 per tonne for next year, according to Kenanga Investment Bank Research, an increase of RM200 in both cases.
The research house also expects 2020 to be a better year for planters given the stronger-than-expected production growth in the second half of the year.
“We continue to believe that there is an upside risk to the Malaysian Palm Oil Board’s (MPOB) production estimate at 19 million tonnes in 2020, ” Kenanga Research said in a recent report.
“In order to achieve our initial CPO price forecast of RM2,300 per tonne, the CPO price for fourth quarter 2020 has to fall (-49%) and average at RM1,478 per tonne for the quarter.“As such, we are revising our CPO price forecast to RM2,500 per tonne in 2020 (from RM2,300) and RM2,600 per tonne in 2021 (from RM2,400) given the La Nina conditions, ” it added.
For planters, Kenanga Research expected the third quarter 2020 earnings to most likely show significant improvement due to the recent increase in CPO prices.
Based on MPOB data, the average CPO price in the third quarter of this year rose by 21% quarter-on-quarter to RM2,771 per tonne from RM2,281 per tonne in the second quarter of this year.
The research house said: “From our checks, we gathered that most planters have done minimal forward selling, leading us to believe that a similar jump should be reflected in planters’ upcoming realised CPO prices.
“This should be further boosted by an industry-wide increase in output in-line with the seasonal pick-up in second half 2020 production.”
For investors seeking exposure to the plantation sector, Kenanga Research has recommended to take positions in Hap Seng Plantations Bhd and Ta Ann Holdings Bhd.
The research house also like big caps planters including Kuala Lumpur Kepong Bhd.
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