KUALA LUMPUR: Hong Leong Investment Bank Bhd (HLIB) has maintained its 'overweight' rating for the plantation sector with the crude palm oil (CPO) price expected at up to RM5,500 per tonne until 2024.
In a note, the investment bank said following the recent second quarter of 2022 (Q2 2022) results, six out of eight planters had released results that met its expectation.
It said that on a quarter-on-quarter (q-o-q) basis, five out of eight planters reported higher core earnings during Q2 2022, mainly due to higher realised CPO prices and seasonally higher fresh fruit bunches (FFB) output.
"Among the eight planters under our tracking, Genting Plantations Bhd
recorded the highest q-o-q core net profit growth boosted mainly by higher CPO price realised and FFB output at the upstream plantation segment and margin expansion at the downstream segment," it said.
On a year-on-year (y-o-y) basis, HLIB noted that eight out of nine planters registered higher core net profit, driven mainly by significantly higher CPO price realised, but partly moderated by lower FFB output and higher CPO production cost.
"All planters reported lower FFB output due to acute labour shortage in Malaysian operations.
"All integrated players under our coverage registered higher downstream contributions during Q2 2022 due mainly to margin expansion (arising from lower feedstock prices),” it said.
Nevertheless, HLIB anticipated that the planters would register weaker earnings in subsequent quarters on the back of lower palm product prices and weaker demand sentiment.
"For exposure, we prefer integrated players such as Kuala Lumpur Kepong Bhd and IOI Corp Bhd over purer upstream players as earnings of integrated players tend to be better insulated amid the volatile palm product price trend,” it added. - Bernama
