Lang
Hong Leong Investment Bank (HLIB) has reiterated its 'overweight' stance on Malaysia's plantation sector, projecting that elevated crude palm oil (CPO) prices will persist through the second half of the year and lift earnings across plantation companies on the back of tightening supply conditions.
In a client note, the research house calculated that every RM100 per tonne increase in the average CPO price projection translates into a 3% to 8% uplift in earnings for the companies under its coverage.
HLIB observed that most plantation operators have been contending with increasingly dry conditions since June, driven by the ongoing El Niño weather event, with the impact appearing more pronounced across Indonesia than in Malaysia. Although it remains too early to quantify the precise effect on productivity, the dry spell is expected to weigh on yields with a lag, further tightening palm oil supply.
On the price front, benchmark CPO futures touched a peak of RM5,018 per tonne on August 21 before easing 0.92% to RM4,972 per tonne at the time of writing on Monday, according to Bloomberg data.
In the downstream segment, HLIB noted that the operating environment remains challenging amid intense competition from Indonesian refiners. Nevertheless, near-term demand — particularly for oleochemicals — should stay supported by restocking activities linked to ongoing geopolitical uncertainties and the upcoming rollout of the European Union Deforestation Regulation.
The recently concluded results season showed that five of the six plantation groups under HLIB's coverage delivered earnings in line with expectations, while Johor Plantations Group Bhd fell short, as its fresh fruit bunch output missed the research house's estimates.
HLIB's top stock picks remain IOI Corp Bhd and Hap Seng Plantations Holdings Bhd, both rated 'buy', with target prices of RM5.10 and RM2.80 respectively.
Source: The Edge Malaysia