PETALING JAYA: Plantation companies are expected to report better earnings on a yearly basis in the second quarter of the year, driven by a 14% year-on-year (y-o-y) rise in average crude palm oil (CPO) prices and 7.4% y-o-y improvement in CPO output from Malaysian estates.
In a note CGS CIMB said it was projecting an quarter-on-quarter (q-o-q) improvement in Q2 earnings as a 34.5% q-o-q increase in output will more than offset the 16% q-o-q fall in CPO price.
“We expect CPO prices to trade in the range of RM2,200-2,500 per tonne in July 2020 and at an average of RM2,300 per tonne for 2020. Our top three picks in Malaysia are Genting Plantations Bhd, Hap Seng Plantations Holdings Bhd and Ta Ann Holdings Bhd. Our preferred regional picks are Wilmar and First Resources,” it said.
The research house is also forecasting palm oil stocks to rise by 6% month on month to 2.01 million tonnes at end-July 2020 as it expects output to be flattish, while exports are expected to fall by 10% on-month as the high export base seen in June is expected to be sustained.
In June, palm oil exports grew 25% m-o-m and 23% y-o-y to 1.71 million tonnes, a record high for the month of June and a 20-month high, thanks to restocking activities by China, and improved demand from India off a very low base.
Malaysia’s palm oil stocks fell 6.3% m-o-m to 1.9 million tonnes in June 2020 due to higher exports and domestic usage, which is supportive of near-term CPO prices.
CGS CIMB expect restocking activities to continue in July at a slower pace, in view of zero export tax in Malaysia and low palm oil stock levels in China and India.
CPO production rose 14.2% m-o-m and 24.8% y--oy to a record high of 1.89 million tonnes in June due to better fresh fruit bunch yields and crop recovery from the previous month due to the Raya break – the highest monthly output since October 2018.
CPO production fell 7.6% y-o- to 9.05 million tonnes in first-half 2020 on weak first-quarter production.
“We deem this in line with our full-year forecast of 19.1m tonnes as 1H’20 accounted for 47% of our FY20 forecast vs historical average of 45%,” the research house said.