RHB Research has maintained an “UNDERWEIGHT” for the plantation sector as it continues to expect the disconnect between CPO and share prices to remain due to ESG concerns with its top stock picks being Wilmar, PP London Sumtra Indonesia, and Sime Darby Plantations.
It said that Malaysia’s CPO output dropped 11.3% MoM in December, while stocks decreased 12.9% to 1.58m tonnes, likely due to the impact of the recent floods.
It said that it continues to expect this year’s fundamentals of supply to improve, with moderation in CPO prices in 2H22, while valuations will remain dampened by ESG risks.
It said that December production dropped MoM (-11.3%), contributed by West Malaysia (-14.7%), Sabah (-9.0%) and Sarawak (-5.6%), bringing YTD output of 18.1m tonnes (or a decline of -5.4%). Indonesia’s output in YTD October grew 9.3% YoY. For 2022, we expect CPO output in Malaysia to stage a recovery to close to 19m tonnes.
It said that the impact of floods is not expected to be significant, but CPO prices have reacted positively, rising 13% in the last three weeks.
It said that based on its checks with planters, RHB understands the floods have had a minimal insignificant impact on output, with some disruptions to harvesting lasting about one week in some West Malaysian estates.
It said that soybean prices have also risen by about 11% in the last three weeks, due to weather concerns, resulting in CPO returning to trade at a USD14.00/tonne discount to SBO (from USD13.00/tonne premium last month) – albeit still significantly below normal discounts of USD100.00-150.00/tonne).“Weather risks remain a wild card for production, especially with La Nina still in effect,” it said.