Five out of eight companies registered higher FFB output in the third quarter of 2021 (Q3).
Plantation players with larger exposure in Indonesia (such as Genting Plantations Bhd, IJM Plantations Bhd and TSH Resources Bhd) are expected to post bigger increases in their realised crude palm oil (CPO) prices in Q3, said HLIB Research.
It said this is led by the revised CPO levy structure in Indonesia and CPO prices that increased more than 60% in Q3.
Plantation companies are expected to begin reporting their Q3 financial results by the middle of this month.
The research house has also raised its 2021-23 CPO price assumption to RM4,250/RM3,500/RM2,900 per tonne versus RM3,800/RM2,900/RM2,800 per tonne previously.
PublicInvest Research said CPO prices have touched an all-time high of RM5,363 per tonne and seen a year-to-date (YTD) gain of more than 42%, while the KLCI Plantation Index slipped 3.8%.
In view of the stronger-than-expected CPO price performance for the first 10 months of the year, the research house has also revised up its 2021 CPO price forecast from RM3,200 per tonne to RM4,000 per tonne.
For next year, it has raised its CPO price forecast from RM2,700 per tonne to RM3,500 per tonne.
“We think the current CPO price momentum will be sustainable until Q1 of 2022.
“Thereafter, CPO prices should ease as we expect production to increase, given the reprieve seen on the issue with the foreign worker shortage in Malaysia,” PublicInvest said.
It added that despite the sustained rally in CPO prices over the last one year, there was little cheer for the Malaysian plantation counters. This is because only four counters under its coverage (FGV Holdings Bhd, Sarawak Plantation Bhd, TSH and Ta Ann Holdings Bhd) delivered moderate gains YTD.
It believes the key reason for the lacklustre share price performance is likely attributed to the steep environmental, social and governance or ESG discount attached to the plantation valuations.
This is despite all the efforts adopted by plantation companies.
However, environmental groups continue to attack the sector on three key areas – deforestation (environmental), fire and haze (environmental) and labour (social).
“On a positive note, we have seen continuous efforts taken by the plantation companies to improve on the traceability of palm oil supply, labour welfare and adoption of monitoring systems to safeguard the estates,” PublicInvest said.
Most plantation companies have also suffered from acute harvester shortage over the last two years due to the closure of international borders during the pandemic period.
HLIB maintains an “overweight’’ stance on the sector, while PublicInvest has a “neutral” call.
HLIB’s top stock picks are IOI Corp Bhd with a “buy’’ call and a target price (TP) of RM4.44 a share, Kuala Lumpur Kepong Bhd with a “buy” recommendation and TP of RM25.33, Sime Darby Plantation Bhd, a “buy” with a TP of RM4.99, and TSH with a “buy” call and TP of RM1.31.