MaybankIB Research forecast the new year will likely be a good financially for local plantation companies as demand for CPO is expected to remain steady.
PETALING JAYA: Plantation companies are anticipated to benefit from lower production cost due to weaker fertiliser expenses and higher productivity in 2024 while crude palm oil (CPO) price remains high at about RM3,700 per tonnes for the year.
Maybank Investment Bank (MaybankIB) Research forecast the new year will likely be a good year financially for local plantation companies as demand for CPO is expected to remain steady while vegetable oil market fundamentals remain supportive with incremental demand or consumption above incremental supply.
“We maintain our CPO average selling price forecast of RM3,700 per tonne for 2024, which is below 2023’s RM3,830 per tonne, premised on a good South American soybean harvest and anticipated lower year-on-year (y-o-y) unit cost,” the research house noted in a plantation sector outlook report yesterday.
It also expects CPO price to be off to a good start in the first quarter owing to the seasonally low output cycle and likely trend lower by mid-2024 in anticipation of seasonally better output in the second half of the year.
The weather, especially the impact from the El-Nino climate phenomenon, could have a significant impact on prices of veg oils, especially on yields of the soybean crop in Brazil, Maybank IB Research added.
While the possibility of a recession in certain markets may dampen demand, the research house said the sector could get a boost from the Malaysian government announcing a favourable outcome following its review of the windfall profit levy imposed on local CPO producers.
The research house added investors should keep an eye out for merger and acquisition activity as some of the sector companies are trading at a discount and due to a lack of greenfield opportunities.
Maybank IB Research noted the strong CPO prices over the past few years has enabled many planters to build a strong balance sheet to undertake such corporate exercises, more so as some of the planters are attractively priced.
“Planters such as Sarawak Oil Palms Bhd
, Ta Ann Holdings Bhd and Hap Seng Plantations Holdings Bhd (HAPL) are trading below RM32,000 unadjusted enterprise value and planted ha, which is even below replacement costs.
We believe HAPL is prime to be the next privatisation target as it is already 69.5% owned by Hap Seng Consolidated Bhd,” the research house said.
