PETALING JAYA: Plantation companies’ latest quarterly results released last month came in mostly in-line and some went above expectations, says Hong Leong Investment Bank (HLIB) Research.
Out of eight planters under its coverage, the research house said the results of Genting Plantations Bhd
, IOI Corp Bhd and TSH Resources Bhd were within expectations.
Meanwhile, FGV Holdings Bhd, Hap Seng Plantations Holdings Bhd and Johor Plantations Group Bhd’s results have beaten expectations, but Kuala Lumpur Kepong Bhd (KLK) and SD Guthrie Bhd reported disappointing results.
HLIB Research in its plantation sector third quarter of financial year 2024 (3Q24) report said: “Most planters shared that their quarter-on-quarter (q-o-q) output decline in 4Q24 will likely be a mild one and still expect fresh fruit bunch output growth in 2025.
“Crude palm oil (CPO) production cost, on the other hand, is guided to trend down further on the back of higher output and lower fertiliser prices,” the research house noted.
During the quarter, lower-than-expected CPO production cost was the key reason behind the positive earnings surprise for FGV, Hap Seng Plantations and TSH.
Weaker-than-expected performance at the downstream segment, meanwhile, was the key culprit behind the earnings shortfall for KLK and SD Guthrie.
Despite higher realised palm product prices and lower CPO production cost, only five out of eight planters under HLIB Research’s coverage, namely, FGV, Hap Seng Plantations, Johor Plantations, IOI and KLK registered year-on-year (y-o-y) upstream earnings growth.
The negative y-o-y earnings growth registered by Genting Plantations, SD Guthrie and TSH were due to various reasons including biological tree stress and shift in cropping patterns in certain planted areas and smaller harvesting areas, arising from replanting activities, added the research house.
HLIB Research also noted that while production is historically weaker in 4Q vis-à-vis 3Q on the back of wet weather conditions and cropping patterns, most planters shared that the q-o-q output decline in 4Q24 will not be a significant one.
On the CPO price, the research house said: “We maintain our price assumptions of RM4,200 per tonne for 2024 and RM4,000 for 2025.
“We maintain the view that the CPO price will remain at elevated levels possibly until 1Q25, supported by weak near-term output.”Year-to-date, the CPO price has averaged at RM4,155 per tonne.
HLIB Research, which kept a “neutral” stance on the sector, said: “The elevated CPO price will unlikely sustain over the longer term due to palm oil’s large price premium over other competing oils (in particular, soybean oil).”
For exposure, the research house’s top “buy” picks are Hap Seng Plantations with a target price (TP) of RM2.44 and IOI with a TP of RM4.30.
“We take the opportunity to downgrade our rating on Johor Plantations to a ‘hold’ from a ‘buy’ earlier, with an unchanged TP of RM1.35, given the recent share price performance,” it added.
