Analysts neutral on plantation sector, solid earnings expected from planters
KUALA LUMPUR: Analysts are generally neutral on Malaysia’s plantation sector but also believe that planters could record solid earnings in the upcoming results season.
Kenanga Investment Bank Bhd’s research arm (Kenanga Research) said despite a weakening price outlook, it maintained a neutral view on the sector as it expects solid earnings from planters to be announced over the next few weeks.
“Year-on-year (y-o-y), we expect the second quarter of 2017 (2Q17) to deliver stronger earnings on the back of both higher crude palm oil (CPO) prices and stronger Malaysian production, while quarter-onquarter (q-o-q) earnings should be flat-to-higher on seasonally better production albeit softer CPO prices.
“Overall, we expect 2Q17 results to come in largely within expectations as we have priced in production recovery for the year,” it said.
Kenanga Research forecast the plantation sector’s August 2017 supply could hit two million MT, exceeding demand of 1.83 million MT.
It explained, “We expect a production uptrend to continue at a seven epr cent increase to 1.96 million MT with strong recovery in Peninsular Malaysia and growth in Sarawak but milder gains in Sabah.”
It also expected demand to see an improvement of 15 per cent in late August, to 1.61 million MT, on better availability, early festive buying and more attractive discount to soybean oil (SBO).
“In sum, we expect stocks to close 10 per cent higher at 1.96 million MT in August 2017,” the research team added.
On the other hand, MIDF Amanah Investment Bank Bhd (MIDF Research) kept a neutral view on the plantation sector but pointed out that the strong production in the second half of 2017 (2H17) could cap crude palm oil (CPO) price upside.