UOBKH Research said CPO would likely trade between RM3,700 and RM4,200 per tonne in the first three months of this year.
PETALING JAYA: The outlook for the plantation sector remains mixed, with conflicting expectations in the direction of crude palm oil (CPO) prices.
While some analysts see CPO prices potentially trending higher this year, especially in the first half due to tightening supply, others expect the prices to remain sluggish on higher output.
UOB Kay Hian (UOBKH) Research, which had an optimistic outlook, said CPO would likely trade between RM3,700 and RM4,200 per tonne in the first three months of this year.
Maintaining an “overweight” rating on the sector, the brokerage forecast an average CPO price of RM4,200 per tonne through 2024.
“We recommend investors to strategically accumulate positions in upstream plantation companies exhibiting better-than-peers growth arising from higher production growth on favourable age profile and located in areas least affected by El Nino or the recent high rainfall.
“Thus, we recommend investors to accumulate plantation stocks,” UOBKH Research wrote in its report yesterday.
It noted that palm oil supply was expected to decline in the first half of the year on lower production due to the high rainfall and mild El Nino effect in late second quarter, increase in domestic demand during the Chinese New Year and Hari Raya Aidilfitri celebrations.
UOBKH Research’s top picks for the sector included IOI Corp Bhd
, Hap Seng Plantations Holdings Bhd and Genting Plantations Bhd, while the recommended trading “buys” were Sime Darby Plantation Bhd and Kuala Lumpur Kepong Bhd (KLK).Malaysia’s palm oil production in 2023 posted a marginal increase of 0.5% year-on-year (y-o-y), driven by stronger domestic use and exports, with Dec 23 inventory up 4.3% y-o-y to 2.29 million tonnes.
Despite its “neutral” stance on the plantation sector, MIDF Research acknowledged that a potential delayed onset of El Nino event could pose risks to crop productivity in 2Q24.
“We opine this could create a favourable trajectory for CPO prices, potentially driving them to nearly RM4,500 per tonne in 2Q24,” it said.
Nevertheless, its baseline expectation was an average CPO price of RM3,600 per tonne for 2024 as compared to RM3,800 per tonne in 2023.
“This is in light of the expectation of abundant supply without any significant constraints in local productions,” MIDF Research explained. Its top pick for the sector was Ta Ann Holdings Bhd.
Kenanga Research forecast 2024 CPO prices to remain at 2023’s average of RM3,800 per tonne.
It maintained its “neutral” stance on the plantation sector, citing current price-to-book value of 1.1 times suggested limited price downside, while near-term upside catalyst was absent.
Kenanga Research named KLK as its preferred pick, given the group’s good track record and potential to expand upstream and downstream beyond Malaysia.
