KUALA LUMPUR: The recent fourth quarter (4Q) showing by plantation companies, which came in within expectations, cements the optimistic outlook for the plantation sector in the coming months, analysts said.

In addition, continuing strong demand in major consuming countries such as China would also ensure that crude palm oil (CPO) prices remain buoyant, HLG Research said in a report yesterday.

China had imported 396,796 tonnes of CPO last January, up 157% year-on-year (y-o-y).

In Malaysia, plantation companies’ earnings generally came in within expectations.

Sime Darby Bhd, the world’s largest listed palm oil producer, posted a net profit of RM428.19 million for the second quarter ended Dec 31, 2009, an increase of 53.7% y-o-y, while revenue rose 15.5% to RM8.43 billion.

IOI Corp Bhd’s net profit more than doubled to RM461.21 million in its second quarter ended Dec 31, 2009, despite revenue falling 17.9% to RM3.03 billion.

However, OSK Research remained cautious about Malaysian plantation stocks, which it said were trading at unattractive valuations.

“The relatively stable palm oil price from 3Q going into 4Q was to be credited for the steady earnings performance. However, it also means that none of the planters surprised on the upside, which means plantation stocks in general will not get a boost from the December quarter’s earnings,” OSK said.

Yesterday, CPO for May delivery fell 0.7% or RM18 to RM2,612, while most plantation stocks were generally flat despite the FBM KLCI’s gain of 4.67 points to 1,288.07.

Kuala Lumpur Kepong Bhd rose 34 sen to RM17, PPB Group Bhd gained 16 sen to RM16.16, Genting Plantations Bhd rose seven sen to RM6.29 while Sime Darby added three sen to RM8.63.

IOI and IJM Plantation Bhd remained unchanged at RM5.45 and RM2.46 respectively. Likewise, Kulim (M) Bhd, Far East Holdings Bhd and Batu Kawan Bhd were also unchanged at RM7.21, RM6.50 and RM10.12 respectively.

HLG Research maintained that the outlook for the industry in general over the coming months looked optimistic.

“This is based on the lower supply of other oils in the coming months, namely soy oil and rapeseed oil due to delay in planting of summer crops in the northern hemisphere,” it said.

“The uncertain weather conditions in palm growing areas of Malaysia and Indonesia will most likely result in further tree stress. Fresh fruit bunches yield in Malaysia for January has lowered — from 2009’s 1.52 tonnes to 2010’s 1.45 tonnes,” the research house added.

Amid the uncertainty of supply, the continuation of favourable tariff policy on palm imports into India would boost demand for palm oil there, further lending strength to CPO prices. Edible oil consumption in India is forecast to grow 13% y-o-y.

HLG Research maintained its price target for CPO at RM2,800 per tonne within the first half of 2010.


This article appeared in The Edge Financial Daily, March 3, 2010.