Kenanga Research has maintained its CPO price forecasts at RM3,800 per tonne for 2023-2024.
PETALING JAYA: Analysts are mostly “neutral” on the plantation sector, pegging the price of crude palm oil (CPO) between RM3,800 and RM4,000 per tonne for 2023-2024 amid a fragile supply-demand outlook.
For Kenanga Research, the edible oil supply in 2024 is expected to generate a slight surplus.
“However, a deficit cannot be dismissed as out of the four main edible oils, only soyabean oil supply is likely to grow substantially next year,” the research house noted.
It also said the supply of palm oil, the most widely used edible oil, is expected to only inch up as new planting has slowed considerably while oil palm trees are ageing, causing overall sector wide fruit yields to drop.
Meanwhile, edible oil demand is normalising back to its 3% to 4% year-on-year (y-o-y) trending growth.
On the Malaysian Palm Oil Board’s (MPOB) latest November palm oil statistics, Kenanga Research said the palm oil output of 1.78 million tonnes came in within Kenanga Research and consensus expectations.
The closing inventory thus improved at 2.42 million tonnes y-o-y but stayed flat month-on-month, which is overall slightly lower by 4% to 5% than the research house and market expectations.
Kenanga Research has maintained its CPO price forecasts at RM3,800 per tonne for 2023-2024.
“Although quarterly CPO prices and earnings can be volatile, the plantation sector can be quite defensive over the longer term.
“Within the sector, we prefer growth over income for the next three to six months,” said the research house.
It likes Kuala Lumpur Kepong Bhd
(KLK) with a target price (TP) of RM24.50 given its sterling track record expanding upstream regionally.
Rating-wise, it offers better value compared to other larger market cap, integrated players.
Kenanga Research has an “outperform” call on PPB Bhd with a TP of RM19.30 as its earnings should recover in financial year 2024 on decent associate Wilmar International Ltd’s earnings as well as its own regional flour and feed businesses, yet it is trading at decade low price-to-book value.
In addition, it likes TSH Resources Bhd with a TP of RM1.30.
“The group has pared debts aggressively, recapitalised and is now ready to expand by another 30% to 40% in new oil palm areas over the next few years,” said Kenanga Research.
Moving forward, RHB Research meanwhile said downstream players are hoping for a better 2024 on higher price volatility and improved demand.
It cited the MPOB’s November palm oil stocks fell to 2.42 million tonnes as both output and exports fell 8% and 6% month-on-month.
“The stock-to-usage ratio is now at 13%, above the 15-year historical average of 10%,” added RHB Research.
Although production is set to taper off in the coming months, the brokerage firm said the weakening export market demand may be likely, given the high stock levels.
“This could mean palm oil stocks may still exceed two million tonnes, potentially until the year-end, at least,” it noted.
RHB Research, however, continues to expect a higher CPO price environment in the first half of next year, in anticipation of a weaker El Nino affecting peak output in the second half of the year.
“We also continue to prefer Malaysian players over the regional ones,” it added.
The brokerage firm’s top picks are KLK, IOI Corp, Ta Ann Holdings Bhd and Sarawak Oil Palms Bhd.
Hong Leong Investment Bank (HLIB) Research also expects local palm oil stockpiles to remain elevated at current levels.
“Stockpile will likely remain flattish in December, as seasonally low production, which we believe has started since November, will be offset by weak near-term demand sentiment arising from weak demand sentiment in China and price competition from other competing oils such as soy oil,” the research house said.
HLIB Research, which maintained its CPO price assumptions of RM3,850 for 2023 and RM4,000 per tonne for 2024, said: “We expect El Nino’s impact on palm production and prices to kick in around mid-2024.”
It kept a neutral stance on the sector given the absence of notable demand catalyst.
For exposure, HLIB Research’s top picks are IOI with a TP of RM4.66 and Hap Seng Plantations Bhd with a TP of RM2.06 respectively.
