With the geopolitical risk of war becoming a reality, thereby causing all commodity prices to spike up further. Crude oil prices have shot past USD100.00/bbl while CPO futures prices have shot past MYR6,500/tonne. RHB Research has upgraded their sector weighting to NEUTRAL, given the knock-on effect on commodity prices and, therefore, earnings and valuations of the planters.
With Russian missiles and air strikes starting in Ukraine, crude oil prices have shot past USD100.00/bbl, bringing along with it other
commodity prices like CPO. War is now the base case scenario. While the Research house makes no changes to their CPO price assumptions for now – given the fluid scenario – they believe as prices move up further, valuations will come down to even below ESG-dampened discounted levels The Research house has upgraded to NEUTRAL from Underweight. Top Picks of the plantation sector would be Kuala Lumpur Kepong (KLK), Sarawak Oil Palms (SOP), Ta Ann, and PP London Sumatra (LSIP).
It was also highlighted in the report that in their previous Underweight call was based on the fact that ESG discounts will continue to dampen the valuations of the sector. While we continue to hold on to this belief – as CPO prices move higher – valuations of the planters would fall even below the ESG discounted levels [which we deemed at -1SD (standard deviation) from historical averages], making it more ttractive. As such, given this unpredictable event, hence the upgrade the sector to NEUTRAL.