Stagnant share prices

The valuations of bigger-cap planters in Malaysia have not moved much despite the volatile CPO prices, whether upwards or otherwise

PETALING JAYA: The share prices of most plantation companies have been relatively stagnant despite the spike in crude palm oil (CPO) prices.

RHB Research said this could be due to the market not believing that the current CPO price rally can be sustained.

The research unit also said the current retail-driven market was having blinkers on for sectors other than healthcare and technology, and the impact of the rise in Indonesia’s export tax levy, which will mean pure planters with a large exposure in Indonesia may not benefit as much from the CPO price hike.

The valuations of bigger-cap planters in Malaysia have not moved much despite the volatile CPO prices, whether upwards or otherwise, it pointed out.

RHB Research updated its sensitivity analysis on earnings and the target price of the stocks under its coverage, based on CPO prices averaging RM2,350-RM3,350 per tonne.

Based on its analysis, most share prices of planters are still reflecting lower CPO prices of RM2,550 per tonne and below.

On the higher end of the scale, there are some counters reflecting slightly higher CPO prices of RM2,650-RM2,750 per tonne.

“As such, we believe there are pockets of opportunities for investors to cherry-pick some quality planters at inexpensive valuations, ” added RHB Research.

Its top picks across the region include Kuala Lumpur Kepong Bhd and Sarawak Oil Palms Bhd in Malaysia, and First Resources Ltd and Wilmar International Ltd in Singapore.

RHB Research has raised its CPO price assumptions to RM2,600 per tonne for 2020 and RM2,650 per tonne for 2021.

“We expect CPO prices to be slightly higher year-on-year, given the weaker stock-to-usage ratio projections for next year, ” it added.

Of late, the CPO prices have been very volatile, racing past the RM3,000-per-tonne mark and then falling back below before subsequently swinging up and down by RM50 to RM100 per tonne on a daily basis.

Besides the usual supply and demand dynamics, RHB Research believes that three major swing factors that could determine the price direction of CPO in 2020 are soybean prices which are tied in with weather issues, crude oil prices (which are tied in with Covid-19) and the labour issues in Malaysia.

The research unit has relooked some of its fresh fruit bunch (FFB) growth assumptions, and tempered down some forecasts slightly, to be more conservative.

It has also updated the earnings forecast for the latest in-house US dollar-ringgit foreign-exchange assumptions.

“All in, we have raised the forecasts of the stocks under our coverage by an average of 7%-10% for 2020-2021, while earnings estimates for 2022 have been tweaked minimally, ” RHB Research added.

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