The third quarter (3Q21) results of most planters are expected to improve further, boosted by higher palm product prices and fresh fruit bunches (FFB) output.
Five of the eight companies covered by Hong Leong Investment Bank Bhd (HLIB) reported higher FFB output in the third quarter.
“We believe that, as a result of the revised CPO levy structure in Indonesia, plantation players with greater exposure to Indonesia will see larger increases in their realised CPO prices in 3Q 2021,” HLIB says today.
Genting Plantations Bhd, IJM Plantations Bhd, and TSH Resources Bhd are among the planters with significant plantation exposure in Indonesia.
Most plantation players will report better 3Q results, according to HLIB, because the significantly higher CPO price, which increased by more than 60%, will more than offset lower FFB output.
While higher feedstock costs will hurt margins in the downstream segment, this will likely be offset by increased demand for downstream products, according to the firm (following the gradual reopening of economies).
“Aside from the results preview, we’ve raised our CPO price assumptions for 2021-2023 to RM4,250/RM3,500/RM2,900 per tonne from RM3,800/RM2,900/RM2,800 per tonne previously.”
“In the upcoming results season, earnings forecasts and target prices on individual planters will be adjusted (to reflect high CPO price, production cost, and lower output assumptions),” it says.
HLIB has maintained its “overweight” stance on the plantation sector, citing increased CPO prices as a source of near-term earnings growth.
IOI Corp Bhd, Kuala Lumpur Kepong Bhd, Sime Darby Plantation Bhd, and TSH Resources are among its preferred “buys.”
