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PETALING JAYA: Analysts are divided over the prospects of the plantation sector following news that palm oil inventory in October 2019 fell by 14.4% year-on-year to 2.3 million metric tons (mt) due to lower-than-anticipated output.
The plantation index gained 100.49 points or 1.46% to 6,968.69 points today, with Sime Darby Plantation Bhd and Kuala Lumpur Kepong Bhd being the top gainers to close 17 sen and 16 sen higher at RM5.15 and RM22.36, respectively.
In a report, MIDF Research said it is maintaining its negative call on the sector with an unchanged 2019 CPO price target of RM2,090/mt.
“Despite the year-over-year decline in October 2019 production level, the year-to-date output remains high at 17 million mt due to a robust fresh fruit bunch (FFB) yield in 1HCY19. Assuming the peak output period has ended early in September 2019, coupled with a steady export demand growth rate, we are likely to see a continued gradual downward trend in the inventory level.
“Meanwhile, the weakening export demand from India might partially dampen the price which could be mainly predicated on factors such as: India’s 5% tariff hike, Chinese buyers resume loading up soybean and the winter season where palm oil might not be the most suitable oil to be consumed as it tends to turn semi-solid or thick,” it said.
However, PIVB Research is maintaining an overweight call on the sector, with a CPO price forecast of more than RM2,800/mt in the coming months due to the tightening CPO supplies in the global markets.
“We think the upcoming 3Q19 corporate results for Malaysian plantation companies may still be lukewarm as CPO prices only gained momentum in late-August.
“During the quarter, Sarawak Plantation registered the strongest FFB production growth, up 20.9%, followed by FGV (14.8%) and IOI Corp (12.4%). We think 4Q19 results could be one of the strongest quarterly results seen since 2017,” it said.
The research house also said small-to-mid cap plantation stocks remained as favourites as valuations remain attractive at current levels.
“We believe there should be stronger demand towards the year-end as buyers tend to lock in orders ahead of the possibility of higher palm oil export duty in both Indonesian and Malaysian markets as CPO prices have surpassed the minimum threshold level of RM2,250/mt,” said PIVB in its note.
