PublicInvest Research retains 'overweight' call on plantation sector

PETALING JAYA: PublicInvest Research has maintained its “overweight” call on the plantation sector and said palm oil inventories closed slightly above market estimates due to higher production.
In a note yesterday, the research house said it expects crude palm oil (CPO) production to recover at a faster pace after posting a weak season last year.
PublicInvest noted that Malaysia’s inventories increased 6.5% month-on-month (m-o-m) to 1.55 million tonnes (mt), the highest level this year, and slightly above consensus forecasts of 1.52 mt.
Nevertheless, it said exports are also expected to do well this year banking on recovery of regional economic activities.
PublicInvest said for the first ten days of April 2017, Malaysia’s CPO exports jumped 21% m-o-m, noting the pace of production recovery is the main highlight for buyers, as they tend to buy more when CPO prices become cheaper.
In the short-term, it said exports demand especially from the Middle East and India, is expected to pick up ahead of the Ramadan festive period.
“Despite stronger exports demand, CPO production grew at a larger pace. Stock to usage ratio was unchanged at 8.8%.
“We maintain our ‘overweight’ stance and we like Genting Plantations Bhd, Sime Darby Bhd, Ta Ann Bhd and TSH Resources Bhd,” it added, noting average March CPO price stood at RM2,948 per mt, 22% down from February’s RM3,215 per mt.
On a separate note, HLIB Research said it believes the inventory level will remain low in April 2017, as output recovery will be offset by stronger palm oil demand arising from restocking activities in Muslim countries ahead of the Ramadan month, and seasonally stronger demand from China, as palm oil demand from China tends to strengthen post winter season.
Therefore, HLIB Research said it maintained its “neutral” stance on the sector, as it believes its anticipation of palm oil production recovery will be offset by lower CPO prices (in the absence of significant demand growth catalysts).
Its top picks are Sime Darby, Hap Seng Plantations and CB Industrial Product Holding.