HLIB Research noted that CPO price has averaged at RM4,011 per tonne year-to-date.
PETALING JAYA: Most plantation companies are optimistic about stronger earnings prospects in the second half of 2024 (2H24) compared with 1H24, says Hong Leong Investment Bank (HLIB) Research.
This projection is supported by the anticipated seasonally higher fresh fruit bunch (FFB) production amid relatively stable palm product prices, given the tight supply prospects and stable crude palm oil (CPO) cost at the upstream segment.
There will also likely be restocking activities for downstream products ahead of the implementation of the European Union Deforestation Regulation by end-2024, said the brokerage firm in its latest report card for the sector for the second quarter of 2024 (2Q24).
Out of the eight planters under HLIB Research’s coverage that reported their quarterly results last month, five came in within expectations with TSH Resources Bhd
exceeding them.
However, IOI Corp Bhd and Kuala Lumpur Kepong Bhd fell short.
The brokerage said: “Key reasons for the 2Q24 results shortfall include lower- than-expected FFB output and slower- than-expected recovery at the downstream segment.
“Compared with the preceding quarter (1Q24), there was a notable reduction in results misses (from five out of seven in 1Q24 to two out of eight in 2Q24),” the research house said.
On a year-on-year (y-o-y) basis, HLIB Research said all planters under its coverage registered improvement in their 2Q24 performance.
This was helped mainly by lower CPO production cost and higher realised palm product prices at the upstream segment, and improved performance in the downstream segment for the integrated planters.
“Despite the improved labour situation, we note that three out of eight planters registered a y-o-y decline in their FFB output, namely Genting Plantations Bhd, Hap Seng Plantations Holdings Bhd and TSH.
“We note that the y-o-y output decline registered by these planters were due mainly to biological tree stress and shift in cropping pattern in certain planted areas, as well as smaller harvesting areas arising from replanting activities,” it said.
Despite the mixed y-o-y FFB output growth trend in 2Q24, most planters remain optimistic about positive FFB output growth in 2024.
HLIB Research said CPO production cost, however, is on track to trend lower in 2024, on the back of higher productivity and lower fertiliser prices.
It noted that CPO price has averaged at RM4,011 per tonne year-to-date.
“We maintain our CPO price assumptions of RM4,000 per tonne for 2024 and RM3,800 per tonne for 2025,” the research house said.
It also maintained a “neutral” stance on the sector, given the absence of a notable demand catalyst.
HLIB Research’s top buy picks are IOI at a target price (TP) of RM4.22 and Hap Seng Plantations with a TP of RM2.21.
