Analyst upgrades view on plantation sector
KUCHING: MIDF Amanah Investment Bank Bhd’s research arm (MIDF Research) upgraded its rating on Malaysia’s plantation sector to ‘positive’, premised on its better prospects in 2018.
In a report, it saw that while the KL Plantation Index (KLPLN) has weakened throughout the year, it believed that the underperformance of the index has now reached an end.
“We upgrade the plantation sector to positive due to five reasons; consensus palm oil price forecasts are too pessimistic, demand outlook for palm oil is better in 2018, supply growth for palm oil to weaken in 2018, soybean production should decline for both Brazil and Argentina in 2018, and strong set of earnings (are) expected in the upcoming November result season,” it said.
It explained the KLPLN decline was mainly caused by the decline in futures palm oil price to the lowest point of RM2,398 per metric tonne (MT) at June 13, 2017 (from RM2,822 per MT as of March 8, 2017) before it rebounding to RM2,778 per MT as of October 24, 2017.
“Our expectation that palm oil price peak should have been reached (at that time) and price is unlikely to surge above RM3,000 per MT has generally materialise.
“Over the same period, KLPLN Index performance of negative five per cent has also underperformed FBM KLCI’s 0.4 per cent. We believe that the underperformance of KLPLN was justified but it has now reached an end,” it opined.
The research team believed that the cnsensus’ palm oil price forecasts for average palm oil price in 2017, which range between RM2,600 to RM2,700 per MT, are too pessimistic.
“With year to date (YTD) palm oil price of RM2,850 per MT and three- months futures palm oil price traded at above RM2,700 per MT, we believe that consensus forecasts are too pessimistic.
“For 2018, our contrarian average palm oil price estimate of RM2,900 per MT differs from consensus range of RM2,400 to RM2,600 per MT.
“We believe that the key difference is our view on demand as we estimate that the demand growth of four per cent to 66.49 million MT in 2018 to exceed 2017 growth of 2.5 per cent year-onyear (y-o-y) to 63.93 million MT. For 2017, we have also increased our average CPO price estimate to RM2,825 per MT (from RM2,725 per MT),” it said.
Aside from that, MIDF Research believed that demand for palm oil is expected to be better in 2018.
“We estimate global palm oil consumption to increase by four per cent or by 2.56 million MT to 66.49 million MT. This is expected to surpass the growth of 2.5 per cent or 1.55 million MT in 2017 to 63.93 million MT. Turn to Page B2, Col 1