RHB Research has maintained its CPO price assumption at RM3,900 per tonne for 2023 and 2024.
PETALING JAYA: A continued peak production season may result in the local palm oil stocks staying high, thus putting pressure on the crude palm oil (CPO) price performance, say analysts.
Brokerage houses, which are mostly “neutral” on the plantation sector, have pegged the CPO prices to trade between RM3,700 and RM4,000 per tonne for 2023 to 2024.
On Tuesday, the Malaysia Palm Oil Board’s (MPOB) latest palm oil statistics revealed strong palm oil output at 1.83 million tonnes on the back of 2.31 million tonnes in stockpile for end-September.
According to RHB Research, the local palm oil output continues to rise amid the El Nino and haze factors.
“While a pick-up in demand is anticipated due to the festive season, higher competition and the peak output season would mean that palm oil stocks still exceed two million tonnes – potentially until the end of the year, at least,” said the research house in its regional sector report yesterday.
However, it said El Nino would impact productivity from late second quarter of 2024 (2Q24), thereby pushing CPO prices higher in 2H24.
The research house has also maintained its CPO price assumption at RM3,900 per tonne for 2023 and 2024.
Its top picks are IOI Corp Bhd
, Sarawak Oil Palms Bhd (SOP) and Ta Ann Holdings Bhd.
Regionally, it preferred integrated planters such as Golden Agri-Resources Ltd and Wilmar International Ltd.
Meanwhile, Maybank Investment Bank (Maybank IB) Research is positive that palm oil stockpile in October may continue to climb on still strong output trend.
“Had it not been for the unexpected strong domestic consumption, MPOB’s September stockpile of 2.31 million tonnes would have been even higher,” it said in its regional plantation report yesterday.
Maybank IB Research said CPO should stay price competitive in the near term.
“The present wide CPO price gaps vis-a-vis other major competing oils are needed to be sustained to stimulate demand for palm oil until such time that the market believes that the stockpile has peaked and production is anticipated to come off rapidly,” it added.
Hence, the brokerage firm has maintained its CPO average selling price forecast of RM3,700 per tonne in 2023 as CPO must stay price competitive in the short term to help boost demand.
It also reiterated that CPO price would likely soften or at best stay at current levels at least for the rest of the year – before trending higher into early part of 2024 on seasonal low output cycle.
Maybank IB Research’s preferred “buys” in the sector are Genting Plantations Bhd, SOP, Ta Ann, First Resources Ltd and Bumitama Agri Ltd.
Hong Leong Investment Bank (HLIB) Research said it is reviewing its CPO price assumption of RM4,000 per tonne for next year.
“This (review) is with a downside bias as we believe seasonally higher cropping pattern for palm, high vegetable stock levels among key consuming countries, and weak near-term demand sentiment will suppress near-term CPO price movement,” the research house said.
Year-to-date, the CPO price has averaged at RM3,880 per tonne.
HLIB Research also expects palm oil stockpile to likely remain flattish in October, as seasonally higher cropping pattern will likely be offset by potentially stronger near-term demand for palm oil.
For exposure, the research house’s top “buy” pick is IOI with a target price (TP) of RM4.66 given its commendable valuations.
Meanwhile, Kenanga Research said the country is in peak fresh fruit bunch (FFB) production season, hence the strong September 2023 palm oil output of 1.83 million tonnes, 2% better than Kenanga’s, and 6% above consensus’, estimate. “We are keeping our CPO price estimate of RM3,800 per tonne for 2023-2024.
“Trading at 1.1 times price-to-book value, the sector’s downside looks limited, but a strong upside catalyst is missing,” added the research house.
The pending El Nino is also likely priced in and unless the situation worsens considerably, according to Kenanga Research, it will stay “neutral” on the sector.
It also highlighted while year-to-date average fertiliser price is still high by historical measure, it is, nevertheless, down by 30% year-on-year (y-o-y).
Likewise, diesel cost has eased y-o-y and the cost of producing CPO is also offset by the sale of palm kernel (PK), a side product when milling FFB to obtain CPO.
Though CPO price can be volatile, Kenanga Research said well managed plantation groups can offer good returns as well as income.
“We like PPB Bhd (TP: RM19.30) for its associate company, Wilmar’s exposure into China and India along with its own growing consumer essential products in South-East Asia.
“However, Kuala Lumpur Kepong Bhd (TP: RM24.50) is our sector pick for the group’s strong track record, hunger to still expand with progressive push towards greater productivity, efficiency and sustainability,” added Kenanga Research.
