KUALA LUMPUR: Most planters are expressing optimism that the second half of the year will prove stronger due to seasonally higher fresh fruit bunch (FFB) production, said Hong Leong Investment Bank (HLIB) Research.
"Despite the mixed year-on-year (y-o-y)FFB output growth trend in 2Q24, most planters still guided for positive FFB output growth in 2024, supported mainly by continuing labour productivity improvement, more conducive weather condition, and seasonally higher cropping pattern in 2H.
"CPO production cost, on the other hand, is on track to trend lower in 2024, on the back of higher productivity and lower fertiliser prices," said the research firm in a note.
Meanwhile, restocking activities for downstream products ahead of EUDR implementation by end-2024 is also set to bolster the 2H24 performance.
However, HLIB said prospects at the refining sub-segment will likely remain subdued given the overcapacity of refining facilities in Indonesia.
The research firm, which has a "neutral" call on the plantations sector, said there is a notable absence of demand catalyst.
For exposure, its top buys are IOI Corp Bhd
with a target price of RM4.22, and Hap Seng Plantations Bhd with a target prie of RM2.21.
During the second quarter, HLIB said five of the eight planters under its coverage reported results in-line with expectations.
"All planters under our coverage registered y-o-y improvement in their 2Q24 performance, and this was helped mainly by lower CPO production cost and higher realised palm product prices at the upstream segment and improved performance at downstream segment (for the integrated planters)," it said.
It noted that despite the improved labour situation, three out of eight planters registered y-o-y declines in their FFB output, namely Genting Plantations Bhd, Hap Seng and TSH Resources Bhd.
