The plantation sector will also remain saddled with ongoing issues such as low yield, ageing trees, declining planted area and high unit cost, Maybank IB Research said.
PETALING JAYA: Disciplined replanting with higher yielding seeds, mechanisation and more consolidation such as merger and acquisition (M&A) will stay as the plantation industry’s key focus in the years to come, says Maybank Investment Bank (Maybank IB) Research.
The sector will also remain saddled with ongoing issues such as low yield, ageing trees, declining planted area and high unit cost, it noted
According to Maybank IB Research, its plantation stocks “buy” calls are Genting Plantations Bhd
, Sarawak Oil Palms Bhd, Ta Ann Holdings Bhd, Bumitama Agri and First Resources Ltd.
In 2023, the crude palm oil (CPO) yield rose slightly year-on-year to 3.14 tonnes per ha on a better fresh fruit bunch (FFB) yield of 15.79 tonnes per ha and higher oil extraction rate (OER) of 19.86%.
The improved yield was mainly due to a better second half of last year as the labour situation gradually improved, said Maybank IB Research in its latest report yesterday.
Besides higher fertiliser and wage bills over the past two years, the low yields experienced by local planters have partly pushed up unit cost of production in the financial year 2022 (FY22) to FY23.
“By our estimate, Malaysian planters’ unit cost has jumped by 45% to an average of RM2,670 per tonne for the period of FY22 to FY23 compared to FY17 to FY21’s five-year average unit cost of RM1,843 per tonne.
“Nonetheless, we expect local planters’ unit cost to ease somewhat in FY24 on lower fertiliser prices and improving yields,” added the research house.
While the labour situation is expected to improve further in 2024, Maybank IB Research said local oil palm sector continues to face several challenges such as declining planted area, lacking in price competitiveness vis-à-vis Indonesia and low yield.
One point is that oil palm planted area has declined by another 0.022 million ha in 2023, albeit at a slower rate compared to the past three years.
Possible reasons for the decline include conversion to other agri crops due to oil palm diseases, worker shortages, lack of interest by the younger generation, and environmental, social and governance (ESG) considerations, unlocking of land value via property development and infrastructure developments such as solar farms, said Maybank IB Research.
At a recent outlook seminar, the Malaysian Palm Oil Board has projected CPO averaging selling price of RM3,900 to RM4,200 per tonne in 2024, which is higher than Maybank IB Research’s forecast of RM3,700 per tonne, mainly due to insufficient palm oil supply.
Other reasons include implementation of B35 biodiesel mandate in Indonesia that will limit exports of palm oil, unfavourable weather conditions in 2023, soybean production to be tight at least until April 2024 and drawdown in local palm oil stocks to 1.95 million tonnes by year-end, the research house noted.
The key upside risks to the sector and companies are weaker-than-expected production recovery of palm oil and other vegetable oils and Brent crude oil price rising closer to US$150 per barrel
Upside risks also includes, weather anomalies at major palm oil and oilseeds producing regions, unfriendly government policies at producing or exporting countries and escalation of geopolitical tensions in Russia-Ukraine and the Middle East.
