CPO supercycle a boost to palm oil sector

KUCHING: The palm oil industry witnessed an unprecedented super-cycle with crude palm oil (CPO) futures topping RM6,000 per metric tonne (MT) earlier this week for the first time.

This led the team at Public Investment Bank Bhd (PublicInvest Research) to turn bullish on the sector as it expects a strong earnings trajectory for plantation companies.

“We think CPO prices will remain strong in the first half of 2022 given the tight global vegetable oil supplies and also supply constraint for palm oil in the top two producing countries.

“Hence, we revise up our CPO price assumption from RM3,500 per MT to RM4,300 and RM3,800 for 2022 and 2023, respectively.”

PublicInvest Research forewarned of tightening palm oil supply ahead of Ramadan celebration. This comes as the Malaysian palm oil industry started off 2022 with low carryover stocks, standing at 1.61 million MT.

“As the first half is the seasonal low production period coupled with the growing demand ahead of the Hari Ramadan festive period, palm oil inventory is expected to remain tight in the near-term,” it said.

“Following our upward CPO price revision, we raise our FY22-24 earnings per share forecast by 25 to 65 per cent for the plantation companies under our coverage.

“Our top picks are Malaysian upstream players, namely Sarawak Plantation Bhd and Ta Ann Holdings Bhd as their recorded CPO prices are more reflective of the current CPO prices in Malaysia given that they are not subject to the steep discount in Indonesia and majority of their CPO sales based on spot pricing.

“In view of the strongerthan-expected CPO price performance, we revise up our 2022 CPO price forecast from RM3,500 per MT to RM4,300.

“For 2023, we raise our CPO price forecast from RM3,500 per MT to RM3,800. We think CPO price will remain strong in the first half of 2022.

“Thereafter, CPO prices should ease as we expect production to increase when the foreign workers start returning to Malaysia.”